Income has been difficult for investors to come by in recent years, with rising bond prices and overvalued dividend-paying equities forcing down the options available.
With the 5 April ISA deadline fast approaching and many investors yet to use their full allowance for the year, FE Trustnet has previously considered the investment ideas for cautious, balanced and aggressive investors.
Yet, with a growing number of people in retirement, many are looking for monthly income to live on. Below, we look at some of the investment industry experts’ best income ideas for this ISA season.
Evenlode Income
Jason Hollands, managing director at Tilney Group, suggests the five crown-rated, £1.2bn Evenlode Income as an option for income investors to look at this ISA season.
“There are some great equity income funds available, but for both income and growth I’m a fan of Evenlode Income and hold it in my own ISA,” he said.
“Managed from leafy Chipping Norton in Oxfordshire by [FE Alpha Manager] Hugh Yarrow and Ben Peters, the team take a long-term buy-and-hold approach to investing in a concentrated portfolio of mostly large and medium-sized UK companies which the managers describe as ‘cash compounders’.
“These are business with strong free cash flow generation that are able to deliver high returns on capital and consequently grow their dividends in real terms.
“Hugh also avoids businesses bogged down with lots of capital assets such as plant and machinery which can be costly to service and upgrade and ultimately drags on returns.”
The fund has been a top quartile performer in the IA UK All Companies sector over three and five years – though it spent much of that time in the IA UK Equity Income sector before being removed last year for failing to meet three-year dividend targets, recently revised lower by the IA.
For reference – had the fund remained in the equity income sector it would have been among the top five strategies over the past five years based on its total return.
As the below graph shows, the fund is significantly ahead of both the IA UK Equity Income and IA UK All Companies sectors over five years, returning 97.36 per cent.
Performance of fund vs sectors over 5yrs
Source: FE Analytics
The fund has almost a third of its portfolio invested in consumer goods business which includes Unilever whose vast array of brands includes food products such as Marmite and Ben & Jerry ice cream and cleaning brands such as Persil and Surf washing powder. While this is a UK equity fund, some 16 per cent of the portfolio is currently invested in non-UK listed shares such as Microsoft, Johnson & Johnson and Proctor & Gamble.
The fund has a dividend of 3.3 per cent and a clean ongoing charges figure (OCF) of 0.95 per cent.
Artemis Income
Meanwhile, Ryan Hughes, head of fund selection at AJ Bell, suggests the £6.4bn Artemis Income run by Adrian Frost and Nick Shenton.
“Artemis Income has been one of the most consistent funds in the equity income sector over the past decade with experienced fund manager, Adrian Frost, expertly navigating almost everything markets have thrown at him over this period,” he said.
Indeed, over the last 10 years the fund has returned 97.99 per cent, above the FTSE All Share and IA UK Equity Income sector by 17.11 and 24.06 percentage points respectively.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
Artemis Income has been a top quartile performer in the IA UK Equity Income sector over one, three and 10 years and has beaten the FTSE All Share in six of the previous 10 calendar years.
“The fund is well diversified and looks to produce a rising income ensuring that it focuses on companies that offer dividend growth rather than just an outright high yield,” Hughes said.
The portfolio has a high weighting to large-caps (78.8 per cent) with its largest sector weighting to financials (33.6 per cent) and consumer services (18.3 per cent), though its largest holding is in oil giant BP (4 per cent).
The fund has a yield of 3.99 per cent and an OCF of 0.79 per cent.
JOHCM UK Dynamic
A fund not necessarily run with a specific income mandate but that currently has a high yield is JOHCM UK Dynamic, run by FE Alpha Manager Alex Savvides.
The four crown-rated, £385m fund is the selection of Wealth Club investment director Ben Yearsley.
“JO Hambro’s UK Dynamic is a recovery/special situations-style fund where the looks for companies that have the potential to turn around, for example through new management,” he said. “It therefore plays into the value theme that I'm very keen on at the moment.”
Indeed, in its latest factsheet, Savvides says he believes misunderstanding of corporate change by the stock market regularly presents opportunities for the patient, disciplined and unemotional investor.
The fund has consistently been a top performer sitting in the top quartile of the IA UK All Companies sector over one, three and five years, returning 91.26 per cent over the last half-decade.
Yearsley added: “A nice underpinning is that all the companies he invests in have to have the ability to pay a dividend within 12-18 months and while it isn't an income fund per se, the yield is currently 3.4 per cent.”
The fund has an OCF of 0.87 per cent.
Fidelity Moneybuilder Dividend
A more traditional option investors may wish to use for income is Fidelity Moneybuilder Dividend, according to Jason Broomer, head of investment at Square Mile.
“This is a rather conservatively managed fund that principally invests in a portfolio of UK blue chip companies,” he said.
“Its manager, Michael Clark, is a seasoned investor and is very much a safe pair of hands who believes that sensibly managed, higher quality companies that have the ability to deliver sustainable and growing dividends will generate superior returns over the long run.
“The fund is likely to miss out when markets are more exuberant but should provide a more comfortable ride during more testing times.
“In addition to these more defensive characteristics, it also has a good record of growing its annual distributions.”
The four crown-rated fund has a yield of 4.16 per cent and an OCF of 0.67 per cent.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
The £1bn fund has been a top quartile performer in the IA UK Equity Income sector over three years and has performed above the sector average and the FTSE All share over five and 10 years, though it struggled somewhat in 2016 and has underperformed both over one year.