Five funds generating an income for your ISA portfolio
Most of us could benefit from a little extra income – especially now that the Bank of England has started reducing interest rates. Whether it’s to help cover rising bills, treat yourself to something guilt-free, or have more to invest, no-one is going to turn down more money in their pocket. With banks and building societies reducing the amounts they pay, in line with the cut in interest rates, there’s even more incentive for people to find alternative sources.
The good news is there are plenty of investment funds available whose managers are focused on generating a decent level of income. Here we spotlight five income portfolios – each with different focuses – that are worth considering whether you’re after UK exposure or a more global reach.
Please remember that the value of investments will fluctuate and returns may be less than the amount originally invested. Tax treatment depends on your individual circumstances and the ISA and tax rules can change. Chelsea does not offer advice and so you must manage your ISA yourself.
UK: Artemis Income
This fund has been a favoured holding of UK equity income investors for two decades because of its strong investment process and impressive track record. It’s best described as being a flexible, high-conviction portfolio of UK stocks that targets a rising income, as well as capital gain. The fund embraces a diversified approach, holding a portfolio of 45 to 55 stocks, and benefits from the expertise of its highly experienced management team, Adrian Frost, Nick Shenton and Andy Marsh. We believe the fact this fund offers a diversified, eclectic mix of cashflows from different companies enables it to provide a sustainable and durable income.
Europe: BlackRock Continental European Income
Searching for undervalued companies that offer reliable, sustainable dividends is the aim of this fund, which aims to pay an above-average yield, with below-average volatility. The fund’s investment process is focused on fundamental company analysis, along with a strong awareness of macroeconomic trends. It also benefits from having a flexible mandate when it comes to company size and country exposure, with the managers able to move away from the benchmark to pursue a superior yield. Its co-managers, Andreas Zoellinger and Brian Hall, are heavily invested in larger companies with market capitalisations of more than £10 billion.
Asia: Guinness Asian Equity Income
Our next suggestion can invest in companies across the entire Asia Pacific region, including Australia, and adopts a one-in, one-out policy. This portfolio has two stand-out characteristics: a well-defined and disciplined process and the equally weighted stock positions. We like the managers’ approach of focusing on companies that can sustainably grow their dividends, as well as the fact the portfolio looks very different from its benchmark and peers. The largest country exposure is in China at almost 40% of the portfolio*. Taiwan, Australia and Singapore make up roughly a third of the portfolio*.
Global: JPM Global Equity Income
This fund is for those wanting to take a more global approach when it comes to investing for income. We see this as a core equity income fund and like the fact it can invest anywhere – including emerging markets – and in large to mega-cap stocks. Its managers, Helge Skibeli, Sam Witherow and Michael Rossi, aim to achieve a superior yield and are supported in their efforts by a huge global team of analysts. The US currently has the largest country allocation of 60.7%, followed by Europe & Middle East ex-UK accounting for 18.3%*.
Multi-Asset: VT Chelsea Managed Monthly Income
Our final pick is close to our hearts. The objective of this fund is to produce monthly income with some capital growth over the long term – but with lower volatility than global equities. It strategically combines diverse income sources in order to pay roughly the same amount out each month so that investors have an idea what to expect. The fund invests in income funds whose underlying assets can include UK and overseas equities, as well as bonds, gold, property, infrastructure, and targeted absolute return strategies. Currently, 34.2% of the fund is in equities, with 29.3% in fixed interest, 18.3% in alternatives and 12.1% in property holdings**.
*Source: fund factsheet, 31 October 2024
**Source: fund factsheet, September 2024
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and fund managers and do not constitute financial advice.