Four investment funds to consider in your search for income
Rising inflation erodes the real value of your savings – with higher prices, your money will buy less. This has made a regular income an even bigger priority for many people – but the income rates from cash savings accounts and many investments simply aren’t keeping up.
One of the economic themes we saw in 2016 was a return to inflation through the second half of the year, and this trend is showing no signs of slowing down in 2017. The Bank of England expects inflation to hit 2.7% this year (above its 2% target), while estimates from the National Institute for Economic and Social Research are closer to 4%.
The main cause of this increase has been the weakness of sterling since the Brexit referendum. The currency has fallen around 20% against the US dollar and 13% against the euro since the UK voted to leave the European Union. This has increased import costs and is now feeding through into ballooning prices on the high street. As the real value of your savings is affected, finding a regular income in a low interest-rate world is now a priority for many.
We have spoken to many clients about this problem recently – here we highlight four funds that have proven particularly popular with those feeling deflated by a lack of income.
Threadneedle UK Equity Income
Threadneedle UK Equity Income is a £3.6 billion fund and a staple of many income portfolios. Fund manager Richard Colwell is cautious currently, but the portfolio remains fairly balanced. He holds a number of solid, resilient businesses offering consistent dividends. Two of the fund’s biggest holdings are AstraZeneca and Imperial Brands – multinational giants and favourites of many income investors.
Colwell also looks for themes currently driving the markets – such as restructuring or recovery – and finds companies that stand to benefit from these. A recent example is Marks & Spencer. In late 2016 he topped up his position in the retailer, capitalising on its weak share price with the belief that there is scope to unlock more value from its freehold estate in future.
But what lies ahead for the fund? Fund manager Colwell remains cautious on the rallies seen since the Brexit referendum, preferring to focus on long-term investment ideas. Despite the volatility we have seen in the markets recently, he believes that “investors who can maintain a longer-term focus and withstand choppy waters may be rewarded with exciting opportunities.”
Evenlode Income, a multi-cap UK equity income fund, currently has more than half of its assets invested in FTSE 100 companies. The manager’s style is to invest in quality businesses offering growing dividends, with some exposure to cyclical areas of the market.
Recently this style has meant a large amount of exposure to the consumer goods sector – nearly one third of the portfolio. The top two holdings are Unilever – which sells food, drink and personal care products in 190 countries across the globe, and Diageo – the world’s largest producer of spirits, including Smirnoff vodka and Baileys. Fund manager Hugh Yarrow believes these large companies “offer an attractive combination of starting yield, real dividend growth potential over time and low fundamental risk.”
The fund offers a yield that is broadly in line with the wider market. Yarrow’s focus is on growing this yield each year, but with less volatility than the market. In the past he has demonstrated strong downside protection, protecting investors’ capital during uncertain periods. This could make the Evenlode Income fund a good option for income-seeking investors who are less comfortable riding out the ups and downs of the market.
Woodford Equity Income
The £9.5 billion Woodford Equity Income fund needs little introduction. Neil Woodford spent 26 years delivering for investors at Invesco Perpetual before setting up shop on his own. His equity income fund aims to provide both a rising income and capital growth by investing mainly in UK equities.
More than one third of the fund’s assets are invested in the healthcare sector – including its two top holdings, pharmaceuticals giants AstraZeneca and GlaxoSmithKline. Woodford believes this sector “offers investors an exceptional opportunity and considerable long-term value,” with some innovative treatments in the pipelines that the market has failed to acknowledge over the last 18 months.
Whilst by his own admission 2016 was a challenging year for Woodford, he reminds investors that share prices will sometimes rise or fall as a result of short-term sentiment or momentum, rather than long-term fundamentals. He is confident the fund will deliver attractive long-term returns for investors “as the fundamentals reassert themselves, which they inevitably will.” With his track record of delivering positive returns for investors, it is difficult to argue against him.
Artemis Global Income
Rather than focusing on the UK, Artemis Global Income invests in a variety of assets across the globe. 80% of the portfolio is invested in a combination of core, growth and special situations stocks, with the remainder in alternative assets such as fixed income.
The fund’s top holding is Storebrand, a Norwegian insurance and pension firm with more than £53 billion of assets under management. Other big holdings are the more familiar General Motors, manufacturers of Cadillac and Chevrolet cars, and global miners BHP Billiton.
Despite these big names, the fund has a higher weighting to mid-cap stocks than its peer group. Two of these stocks – Italian telephone tower company INWIT and US lender Zions Bank – were strong contributors to the fund in recent months.
Fund manager Jacob de Tusch-Lec also believes we are moving from a deflationary to a reflationary environment, and it is likely that banks and cyclical stocks will continue to perform well. For this reason, he says the fund “remains overweight in these areas of the market, having moved away from defensive yield sources through 2016.”
It’s easy to invest with Bestinvest
You can invest in the above funds through our online service and hold them in an ISA, SIPP or investment account, all of which are available through us. It’s easy to find out more about our service and search all the investments available through us.
If you want to talk to us about your investments or if you have any questions, just call us on 020 7189 2400, request a call back at the top of this page or email firstname.lastname@example.org.
Different funds may carry different levels of risk depending on the industry sector(s) in which they invest. You should ensure that you understand the nature of any fund before you invest in it. Smaller companies shares can be more volatile and less liquid than larger company shares, so smaller companies funds can carry more risk. This is not advice to invest.