Equity income funds managed by the likes of Invesco Perpetual, JO Hambro Capital Management and Fidelity could be attractive options for investors seeking income in the challenging climate, according to Fidelity International’s Maike Currie.

The search for yield shows few signs of abating as factors such as UK inflation reaching an “eye-watering” 3 per cent, stagnating wage growth and interest rates remaining at historic lows make it more important than ever for investors and savers to make their money work harder.

Currie, investment director for personal investing at Fidelity International, pointed out that consumer prices are now rising 1 percentage point faster than the Bank of England’s official 2 per cent target while stagnating wage growth means pay packets can’t keep up with inflation.

Inflation, wage growth and interest rates over the past decade

Source: Fidelity International/ONS/Bank of England, October 2017

“Even if the Bank of England does raise rates next month, this will be of cold comfort to savers as it will only take the base rate to 0.5 per cent,” she added.

“Any further increases are expected to be slow and gradual - expect a crawl towards ‘monetary normalisation’, rather than a lift-off.

“Against this backdrop, the hunt for yield will continue to be a key theme for savers and investors for the foreseeable future.”

With this in mind, Currie chooses four funds that may have the potential to help investors with this ongoing search for income.

Invesco Perpetual Global Equity Income

Performance of fund vs sector over 5yrs

Source: FE Analytics

First up is the £840.8m Invesco Perpetual Global Equity Income fund, which has outperformed its average IA Global Equity Income peer (which is also its benchmark) over one, three and five years. Over five years, an initial investment of £10,000 has led to income payouts totalling £2,198.

“Managed by veteran investor Nick Mustoe, the fund looks for attractively valued companies with strong balance sheets, cash flows, and management teams – indeed, the types of companies sought after by almost all equity income investors,” Currie said.

“What distinguishes Mustoe’s approach is the depth of expertise he deploys to find the very best ideas in a crowded market.”

Mustoe, who is also chief investment officer at Invesco Perpetual, also draws on the expertise of regional fund managers across the group. Simon Clinch is the US regional specialist, Stephanie Butcher looks after Europe ex-UK, Mark Barnett the UK, Tim Dickson covers Asia and Tony Roberts Japan.

The biggest geographical weighting is to the US at 29.41 per cent of assets, followed by the UK (19.59 per cent) and Germany (7.26 per cent). The largest individual holdings are JP Morgan Chase, Microsoft and Novartis.

Invesco Perpetual Global Equity Income has an ongoing charges figure of 0.92 per cent and is yielding 3.01 per cent.

JOHCM UK Equity Income

Performance of fund vs sector and index over 5yrs

Source: FE Analytics

Currie’s next pick is the £3.3bn JOHCM UK Equity Income fund. It is top quartile in the IA UK Equity Income sector over the past one, three, five and 10 years. A £10,000 initial investment has generated income of £2,808 over the past five years.

“Lead manager Clive Beagles has substantial fund management experience, having previously managed the Newton Higher Income fund,” she said.

“The fund’s investment process focuses on dividends, with a strict yield discipline whereby every single stock in the fund must yield more than the market average on a 12-month prospective basis. This fund has a value bias, but companies will only be bought if they have the ability to grow their earnings, and dividend, over time.”

Beagles is joined on the portfolio by James Lowen; the two have worked together for more than 15 years. Beagles tends to focus on the macroeconomic factors affecting portfolio construction while Lowen concentrates on the bottom-up analysis of individual stocks.

The portfolio’s largest positions at the moment include Shell, BP and HBSC while the biggest sector overweights are to financials, industrials and oil & gas.

JOHCM UK Equity Income has a 0.80 per cent OCF (it does charge a performance fee) and is yielding 4.29 per cent.

Fidelity Global Dividend

Performance of fund vs sector and index over 5yrs

Source: FE Analytics

Another option for income-seeking investors, according to Currie, is the £872m Fidelity Global Dividend fund, which has made first-quartile returns over three and five years but is in the second quartile over one year. Over the past five years, £10,000 initial investment has paid out £1,992 in income.

“The Fidelity Global Dividend fund is a solid option for someone looking for an equity income fund that benefits from a global approach,” she said.

“Manager Dan Roberts scours the globe for attractive income streams but never compromises on quality given his razor-sharp focus on preserving client capital.”

Roberts’ process concentrates on long-term valuations and companies’ cash conversion over a three-year time horizon. He has also established a reputation as a patient investor and is not afraid to take strong sector beats.

The portfolio’s biggest individual holdings are in UK drinks giant Diageo, Dutch information company Wolters Kluwer and UK information and analytics firm RELX Group. North America is the largest regional allocation at 33.3 per cent, followed by Europe ex-UK (32.8 per cent) and the UK (15 per cent).

Fidelity Global Dividend has a 0.97 per cent OCF. It is yielding 2.91 per cent.

Invesco Perpetual European Equity Income

Performance of fund vs sector over 5yrs

Source: FE Analytics

Currie’s final fund pick for income is the £800m Invesco Perpetual European Equity Income fund. It is in the first quartile over one year, the third over three and the first over five years, while it has paid out £2,171 on an initial investment of £10,000 made five years ago.

“The Invesco Perpetual European Equity Income fund is managed by Stephanie Butcher with a focus on finding dividend-paying companies with attractive valuations,” Currie said.

“She is less concerned about the sector or country in which a company resides and does not shy away from the out of favour areas of the market where the best opportunities are often found.”

Butcher’s approach revolves around the belief that valuation is the key determinant of future returns over the long term and its fundamental analysis of companies and the market seeks to ignore short-term trends.

Swiss pharmaceutical companies Novartis and Roche are the portfolio’s two largest holdings, followed by French oil & gas firm Total, French telecoms corporation Orange and German courier Deutsche Post. The biggest geographical weightings are to France, Switzerland and Germany.

Invesco Perpetual European Equity Income, which is yielding 2.89 per cent, has an OCF of 0.94 per cent.