However, since financial markets tanked in 2008, fixed income has not been the safe haven it was traditionally thought to be, which is why investors are starting to look elsewhere for gains.
That’s why Andy Merricks and Tim Cockerill think funds such as Invesco Perpetual European High Income and Artemis Income are the perfect options to maintain a consistent income, but add a kick to investors’ portfolios.
Merricks, head of investments at Skerritts Wealth Management, says the £21.2m Invesco Perpetual European High Income fund works well alongside a steady fixed income portfolio such as M&G Optimal Income because it blends a fixed income and equity approach. "For investors who want a bit more equity exposure and don’t mind Europe, we like the Invesco Perpetual European High Income fund," he said.
"If you’re looking to carry on above-average performance but without a lot of risk, this will move on the performance a bit because it has become a bit static in the fixed income market."
Merricks, who is a fan of the Invesco Perpetual Monthly Income Plus fund, says it acts as a European distribution portfolio, so investors are getting a regular income that they can use to reinvest, much like the M&G fund.
"If you believe in the recovery in Europe, the absolute risk is much lower than it was," he said. "In Europe, bonds and equities both still work."
Merricks points out the tiny fund is managed by long-standing fixed income managers Paul Causer and Paul Read, alongside Stephanie Butcher, who manages the equity sleeve of the fund.
It currently has 34 per cent exposure to equities, though it can go as high as 40 per cent. It is currently yielding 2.99 per cent.
The fund has a strong track record over both the short- and medium-term, outperforming the IMA Mixed Investment 20%-60% Shares sector over one, three and five years.
The fund fell further than the market shortly after launch in May 2008.
Since then, however, it has more than doubled the returns of its peers, picking up 52.36 per cent, according to FE Analytics.
Performance of fund vs sector and index
Source: FE Analytics
It has, however, been significantly more volatile than the sector and the fixed income focused M&G Optimal Income fund over the last five years.
The fund requires a minimum investment of £500 and has ongoing charges of 1.61 per cent.
Rowan Dartington’s Cockerill, on the other hand, likes the steady ship of FE Alpha Manager Adrian Frost and Adrian Gosden’s Artemis Income fund.
Cockerill says that while the £16bn M&G Optimal Income fund has performed well, the "party is coming to an end" in fixed income.
"Looking towards equity income is a sensible thing to do because investors are likely looking to preserve income generation in the process," he said.
The four crown-rated portfolio has outperformed the IMA UK Equity Income sector over the last three, five and 10 years, lagging its peers over the last 12 months. The fund has also beaten the FTSE All Share over one, three and five years, but fell below the returns of the market over five.
The fund has gained 163.45 per cent over the last decade, compared with 129.15 per cent from the sector and 136.11 per cent from the index. The fund is yielding 3.9 per cent.
Performance of fund vs sector and index over 10 years
Source: FE Analytics
"It’s quite big but it is just one of those funds that’s been around for a long time and I can trust it," Cockerill said.
He points out that the managers have been through multiple market cycles and always come out with their heads above water, even in some of the worst crises in recent history.
"The process works, it’s not shooting the lights out and I don’t think it ever will, but you can put your money in, rely on it, and don’t have to worry about it," he said.
The fund requires a minimum investment of £1,000 and has ongoing charges of 1.54 per cent.
The five crown-rated M&G Optimal Income fund, run by FE Alpha Manager Richard Woolnough, is currently yielding 3.17 per cent.
It is a standout performer in the IMA Sterling Strategic Bond sector over the long-term.
It has consistently beaten the sector over one, three and five years, in spite of difficult conditions in the bond space.
Over the last five years, Woolnough’s fund has made 88.18 per cent while its peers have gained 57.56 per cent.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
The fund requires a minimum investment of £500 and has ongoing charges of 1.41 per cent.