There are a handful of funds that pay out every month, but few of them are highly rated.
The better options are in the little-bought IMA UK Equity & Bond Income sector, as highlighted in an FE Trustnet article published last year.
The requirement to create a monthly payout can influence managers’ stock selection, meaning that many advisers recommend choosing a set of funds that pay out at different times instead.
Here FE Trustnet looks at how to create a diversified portfolio of five crown-rated UK Equity Income funds that pay out at different times of the year.
January, July
There are a number of high-quality funds that pay out in January and July, including Neil Woodford’s Invesco Perpetual High Income portfolio.
Woodford (pictured) has a long-term record that is second to none in the UK Equity Income sector, as highlighted in a recent article.
However, in recent years his fund has fallen from the top of its sector and the yield has slipped to 3.44 per cent – lower than its sector average.
Ciaran Mallon’s Invesco Perpetual Income & Growth fund has performed better in total return terms over the past three years, making 45.05 per cent while Woodford’s fund is up 42.06 per cent.
Performance of funds vs sector over 3yrs
Source: FE Analytics
It is yielding a similarly underwhelming 3.43 per cent, however.
Rathbone Blue Chip Income & Growth is the highest yielding of the funds that pay out in these months, with a figure of 3.89 per cent, according to FE Analytics.
Julian Chillingworth’s £47.4m portfolio is the smallest of the funds.
It has 15.5 per cent overseas and 9 per cent in the FTSE 250, making it one of the more diversified in the sector.
Matt Hudson’s Cazenove UK Equity Income is the other five crown-rated portfolio with these payout dates.
PFS Chelverton UK Equity Income offers a quarterly payout option and represents a useful diversification tool for investors filling their portfolio with blue chip funds.
It invests a large proportion of its AUM in smaller companies, including those in the FTSE AIM. The £62m fund is yielding an impressive 4.8 per cent.
February, August
Trojan Income is the only five crown-rated fund to pay out in February, causing a problem for investors as it is set to soft-close.
FE Alpha Manager Francis Brooke has decided to deter new investors so he can devote his time to managing the fund rather than meeting clients.
Investors have until 1 May before the minimum initial investment rises to £250,000 and a 5 per cent entry charge is levied.
One alternative is Liontrust Macro Equity Income. Although this £297.8m portfolio only has three FE Crowns, it is managed by FE Alpha Managers Jan Luthman and Stephen Bailey.
While Trojan Income is yielding 4.2 per cent, Liontrust Macro Equity Income pays out just 3.19 per cent.
March, September
FE Alpha Manager John McClure’s Unicorn UK Income fund pays out in March and is currently yielding 3.28 per cent, according to data from FE Analytics.
The £103.5m fund is the best-performing fund in the UK Equity Income sector over one, three and five years, having more than doubled investors’ money over the latter period.
Performance of fund vs sector and benchmark over 5yrs
Source: FE Analytics
The fund is another to generate superior returns by looking to the mid and small cap sectors, and uses Unicorn’s trademark style of seeking companies with a stranglehold on a niche area of their market.
Investors are spoiled for choice with the funds that pay out in this month.
Fidelity Moneybuilder Dividend and Fidelity Enhanced Income pay out quarterly, in March, June, September and December.
Fidelity Moneybuilder Dividend is a £505m portfolio run by Michael Clark. It currently yields 4.09 per cent.
Fidelity Enhanced Income takes Michael Clark’s stock picks and adds a derivative overlay to boost the income, as explained in a recent FE Trustnet article. The result is a yield of 6.94 per cent.
Other top-performing funds with these dividend dates are Royal London UK Equity Income, Evenlode Income and Threadneedle UK Equity Income.
April, October
PFS Chelverton UK Equity Income also pays out in April and October as part of its quarterly scheme.
Another option is Stan Life UK Equity Income Unconstrained, run by Thomas Moore.
Although the fund does not have five crowns, it has been a strong performer since Moore took over the portfolio.
The fund has made 51.47 per cent over the past three years on a total return basis, the sixth-best figure in the sector.
Performance of fund vs sector over 3yrs
Source: FE Analytics
FE Alpha Manager Mark Barnett’s £218m Invesco Perpetual UK Strategic Income also pays out in these months.
The fund is in the top quartile over one, three, five and 10 years, having made 226.13 per cent over the longer time frame. It is currently yielding 3.2 per cent.
May, November
The Vanguard FTSE UK Equity Income fund pays out in May and November and its yield of 4.65 per cent puts many of the active funds in the sector to shame.
It is the second-highest yielder of the five crown-rated funds under consideration, and on a total return basis it has also outperformed the majority of active managers.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
Data from FE Analytics shows it has made 88.7 per cent over five years while the sector has made just 70.38 per cent.
June, December
For income in June, there are a number of funds with a quarterly payout that starts in March to choose from. Alternatively, the tiny £10m CF Olim fund is an option.
Although this fund has attracted minimal inflows, it is one of the best performers in the sector over three, five and 10 years.
Over the longer period it is the fifth-best performer in the sector on a total return basis.
It is managed by Angela Lascelles with Simon Jaffe and Andrew Impey, and is yielding 3.98 per cent, according to our data.