Recently enacted pension freedoms mean that more investors are putting together their own income portfolios when they enter retirement.
A number of asset management groups have reacted to this trend by launching funds that pay an income on a monthly basis, or by increasing the distribution frequency of existing products. Some funds were paying a monthly income long before the introduction of the pension freedoms.
Below, FE Trustnet looks at the highest-yielding funds that pay a monthly income and have at least four FE Crowns.
There are two funds from the IA UK Equity Income sector on the list, the first of which is the five FE Crown-rated Man GLG UK Income product.
Manager Henry Dixon focuses on uncovering out-of-favour opportunities and has an ethos of exploring ‘where others fear to tread’.
Analysts at Square Mile Investment Consulting & Research said that given the contrarian nature of his process and willingness to invest in medium- and smaller-sized companies, the fund may look and act very differently to its peers and benchmark.
“Although this can lead to impressive periods of outperformance, there is therefore also the propensity for it to struggle when this investment style is out of favour, such as in a market focused on high growth stocks or enamoured by only the very largest businesses,” the team explained.
Man GLG UK Income has made 65.41 per cent since Dixon joined in November 2013, compared with 40.4 per cent from the FTSE All Share index and 38.82 per cent from the IA UK Equity Income sector.
Performance of fund vs sector and index under manager tenure
Source: FE Analytics
It has a yield of 4.47 per cent; a £10,000 lump sum invested in the fund at the start of 2013 would have generated £2,807.67 in income in the five years to the start of 2018.
The £705.4m fund has ongoing charges of 0.9 per cent.
AXA Framlington Monthly Income
AXA Framlington Monthly Income’s manager George Luckraft invests in “well-run and well-financed” companies that can provide an attractive and growing income.
The manager takes a multi-cap approach, with around one-third of the portfolio invested in FTSE 100 companies and the rest in small- and mid-caps, including 20 per cent in AIM stocks.
The fund recently attained second spot in the Sanlam White List, which ranks the best funds on seven different criteria including performance, volatility and income generated over a five-year period, with emphasis placed on recent performance.
AXA Framlington Monthly Income has delivered a total return of 65.68 per cent over the past five years compared with 44.13 per cent from the FTSE All Share and 43.95 per cent from the IA UK Equity Income sector.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
The £379.7m fund has a yield of 4.39 per cent; a £10,000 lump sum invested in the fund at the start of 2013 would have generated £2,795.35 in income in the five years to the start of 2018.
It has ongoing charges of 0.84 per cent.
Jupiter Monthly Income principally invests in investment trusts, chosen by manager Richard Curling, alongside some exposure to bonds chosen by the group’s team of credit analysts.
Curling looks for managers of investment companies who have demonstrated an ability to consistently outperform their benchmark without taking too many risks.
When making this assessment, he also looks at the investment process, how consistent the returns have been, and whether the share price is trading at a discount. Because the fund aims to make regular income payouts to its investors, Curling also places a high degree of importance on the income paid.
Jupiter Monthly Income’s top-three holdings are European Assets Trust, F&C UK High Income and Schroder Oriental Income.
The £379.7m fund has made 95.57 per cent since Curling took charge in January 2012 compared with 70.14 per cent from the IA UK Equity & Bond Income sector.
Jupiter Monthly Income has a yield of 4.4 per cent; a £10,000 lump sum invested in the fund at the start of 2013 would have generated £2,823.19 in income in the five years to the start of 2018.
The fund has ongoing charges of 0.84 per cent.
Another fund-of-funds, Schroder Mixed Distribution aims to deliver an income of 5 per cent a year. Manager Mike Hodgson holds funds that invest in shares, bonds and money market instruments, although it can also invest in these directly as well.
The fund is highly concentrated with close to a third of its assets in its top holding, Schroder Strategic Bond, while its top-seven accounts for 95.74 per cent of assets.
Schroder Mixed Distribution has made 65.52 per cent since opening for business in May 2012, compared with 49.05 per cent from the IA Mixed Investment 20-60% Shares sector.
The £87.6m fund has a yield of 5.36 per cent; a £10,000 lump sum invested in the fund at the start of 2013 would have generated £2,850.28 in income in the five years to the start of 2018.
Investors should note it has high ongoing charges of 1.51 per cent.
Artemis Monthly Distribution – managed by Jacob de Tusch-Lec and James Foster – aims to achieve an income in addition to capital growth through an actively managed combination of global equities, bonds and cash.
In a recent note to investors, de Tusch-Lec said he had begun to remove cyclical risk from the portfolio, pointing out that although his thesis since 2016 – that the US market would continue to grow and that inflation would start to come through – has broadly proved correct, he wants to protect against complacency and said it would be prudent to lower exposure to more economically sensitive areas of the market.
“We have for instance, reduced our exposure to financials, particularly in Europe, where the ECB seems increasingly dovish,” he explained. “We have recycled some of the capital into oil stocks.
“We do feel we have weathered the recent economic and market turbulence reasonably well, particularly as our equity exposure does not include some of the fastest-growing (but zero-yielding) technology companies.”
He said he remains cautious towards emerging market equities and bonds, but sees opportunities in bonds issued by banks and other financials, as well as in the high yield market.
Data from FE Analytics shows Artemis Monthly Distribution has made 103.44 per cent since launch in May 2012, compared with 49.05 per cent from the IA Mixed Investment 20-60% Shares sector, making it the best performer over this time.
Performance of fund vs sector since launch
Source: FE Analytics
The £920.9m fund is yielding 3.94 per cent; a £10,000 lump sum invested in the fund at the start of 2013 would have generated £2,574.44 in income in the five years to the start of 2018. It has ongoing charges of 0.84 per cent.