With interest rates still close to zero, bond yields low, and dividends having been cut by more than a third in some countries over the past year, income investors are no doubt wondering where to turn as we near the end of the tax year.
But despite all the doom and gloom, there are pockets of opportunity in most asset classes. Here, Juliet Schooling Latter, research director at Chelsea Financial Services, highlights six funds still yielding more than 4%, which could be considered for this year’s ISA.
Please bear in mind that these yields are not guaranteed and can fluctuate.
Man GLG Income fund has a value-driven approach. It invests no less than 80% in UK companies of all sizes but can also invest in continental European companies that derive a substantial part of their revenues from the UK. It also has the ability to selectively invest in corporate bonds - a flexibility that sets it apart from the majority of its peers. The current distribution yield is 5.7%*
This fund is Invesco’s flagship fixed income product. It has a flexible mandate and is designed to offer investors broad exposure to the UK fixed income market and provide a high level of income (currently 5%*). Unlike many of its sector peers, it can also invest up to 20% in UK equities. At a time when inflation is a potential concern and bonds are expensive, this flexibility could prove very useful.
While bond yields are low across developed markets, that’s not the case in emerging economies. This fund has the flexibility to invest in both government and corporate bonds, denominated in local currencies or in the US dollar ('hard' currency) across the asset class. The manager uses her vast skill set to analyse the macroeconomic environment, and individual companies, to pick what she believes to be the best mix of bonds for this portfolio. The yield is currently 5%*.
The monthly income fund aims to pay roughly the same amount of income each month^ so that investors can budget with confidence. It is a fund of funds and will invest in income funds, whose underlying assets may include UK and overseas equities, bonds, gold and targeted absolute return strategies. Assets such as property and infrastructure, which are renowned for their income-paying potential, are also expected to contribute to the fund’s yield, which is currently 4.9%^.
VT Gravis UK Infrastructure Income is a unique fund that invests in a combination of UK-listed investment trusts, direct equities and bonds. The underlying investments include renewable energy, GP surgeries, transport, water and student accommodation. A minimum of 75% of the portfolio must be supported by UK government or regulated cash flows. The current yield is 4.8%**
This fund aims to pay a decent yield around 30-40% above the wider market, but at the same time offer some capital growth and the opportunity for dividend growth. While the portfolio favours high quality companies, the manager will not invest in them at any price and this value-aware mindset, coupled with the yield target, gives the fund a value tilt. The historic yield is 4%*.
*Source: fund fact sheet, 31 January 2021
**Source: Gravis website, 26 February 2021
^Source: fund fact sheet, December 2020. Income will be smoothed to pay a roughly level amount over 11 months, with a final adjustment payment in the 12th month, which may be more or less than the regular payment. Please note that income payments may take a few months to regulate following fund launch.
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. Juliet's views are her own and do not constitute financial advice.