The five FE-crowned fund is available only through IFA-only platforms, but has produced the best returns over a three year period of the handful of monthly-paying equity funds.
Only AXA Framlington Monthly Income has done better over the past 12 months, while the best long-term track record is that of Threadneedle UK Monthly Income.
The £13.3m Querns Monthly Income fund has been managed by Stephen Whittaker since June 2010 and is currently yielding 4.3 per cent.
Data from FE Analytics shows it has returned 44.9 per cent over three years compared to the average fund’s 35.81 per cent.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
It is rare for funds to pay out dividends every month as most companies pay out on a biannual or quarterly basis. Bond funds are able to do so as bonds typically pay monthly coupons.
But for investors living off their income, such as those in managed drawdown of their pension, being able to diversify their monthly income out of bonds and into equities could add extra security.
Querns Monthly Income used to buy a mixture of corporate bonds and equities until the mandate changed in December 2012.
The fund is now a concentrated portfolio of 36 equities with a multi-cap focus. The top 10 includes FTSE 100 favourites BP, HSBC and Rio Tinto but also a number of FTSE 250 stocks.
Whittaker holds electronics business Laird and financial services firms Intermediate Capital and Provident Financial in his top 10. He also holds FTSE Small Cap stock Smiths News.
A 26.2 per cent slump in the latter stock caused the fund some problems last month. Ongoing charges for the fund are 1.7 per cent.
A better-known and more accessible alternative is AXA Framlington Monthly Income, managed by George Luckraft since September 2002.
The fund is currently yielding 3.67 per cent and is top quartile over five and one year periods in the IMA UK Equity Income sector
Performance of fund vs sector over 5yrs
Source: FE Analytics
It has the best record over one year of any of the monthly paying funds, and its performance over that period has pushed it into the top quartile over the longer period.
Luckraft’s portfolio is another with a very off-benchmark composition. It has just 32.1 per cent in FTSE 100 and 6.41 per cent in the FTSE 250. FTSE Small Cap stock make up 20.33 per cent while the manager holds 21.6 per cent of his fund on AIM and 13.41 per cent on other exchanges.
The fund holds Shell, BP and Glaxo in its top 10 as well as Vodafone and HSBC. It also has FTSE 250 stocks Permier Farnell and small cap Hilton Food Groups among its biggest bets.
Over three years it is in the second quartile of the sector but ahead of the average fund. However, over the past decade the fund doesn’t’ stack up too well, producing bottom quartile returns of just 68.79 per cent. The fund did poorly in 2007 and 2008 and was among the very worst-performers in the sector.
Threadneedle UK Monthly Income has a much better record over that time, producing top quartile returns of 151.97 per cent.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
Over three and five year periods it has only produced second quartile returns, but over the past year has been top quartile.
The five crown rated fund has been run by Jonathan Barber since June 2002. It is situated in many of the traditional sectors of pharmaceuticals, tobacco and utilities.
The AXA Framlington fund has ongoing charges of 0.85 per on its clean share class and the Threadneedle fund 0.87 per cent.
Source: FE Analytics
In the IMA UK Equity Income sector there are two other portfolios available: Premier Monthly Income and Insight Equity Income Booster.
The former has consistently performed above the sector average although ti hasn’t broken into the top quartile. It yields 4.17 per cent and also has five FE crowns.
The latter is a more specialised fund, using derivatives to boost the income up to 8.5 per cent.
As a result on a total return it performs relatively poorly, which fourth quartile returns over three years and third over five.
However, it is designed for those who need income and are happy to see limited capital growth at the same time.
The manager of the £77.7m fund Tim Rees use sells call options on his stock which gives him an extra income and requires him to sell his companies if they rise above a pre-agreed share price. Ongoing charges on the fund are 1.7 per cent.
