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The best income funds yielding more than 5%

The best income funds yielding more than 5%

Many investments aim to grow your money or boost your income, but you don’t necessarily have to make a choice. You can still bag a high and growing income without sacrificing capital growth.  

The best income funds yielding more than 5%

 

Investing for income can be a good strategy whether you need the income immediately or not. They will give you a chunk of your initial investment back year after year, which can be a more reliable source of long-term returns than waiting for capital gains.  

 

If you don't need the income immediately, you could consider re-investing any dividends to buy more of the investment you’re holding. That can be an effective strategy to grow wealth steadily over time and harness the power of compounding.  

 

But if you want to enjoy that extra income immediately, there are plenty of options. The key is to know that different investments pay out income at different times: monthly, quarterly, or annually. And it’s important to remember it might not always be a guaranteed amount.  

 

What level of income should I target? 

Back in the 1990s, experts used 5% as a rule of thumb for the amount retirees could withdraw annually for a steady income without burning through their savings. However, in 1994 financial adviser William Bengen did some digging into historical returns and found that 4% was a safer bet, especially in rocky markets. He examined 33 years’ worth of data and found that no-one had run out of money withdrawing at 4%.  

 

The 4% rule isn't a one-size-fits-all magic number. There are plenty of variables for each person, including life expectancy, healthcare needs and risk appetite. But it's a handy starting point for those looking at how much they can reasonably withdraw each year without running out of cash.  

 

Where to find income today 

Predicting the future of markets, or trying to time them, is a bit like trying to guess the plot twist in a new book. In 2020, it was the global pandemic, and 2022 threw us a curveball with Russia's Ukraine invasion. In 2024, around 40% of the world’s population goes to the polls*, which could create significant uncertainty.   

 

It’s possible to find plenty of optimists about the year ahead, with some analysts forecasting a 10% earnings boost globally in 2024**. This would suggest a blockbuster year for stock markets. However, it is equally easy to find pessimists who predict a gloomy year ahead.  

 

That said, it has definitely got easier to find income, which gives greater predictability to your returns. Global dividends have been rising steadily, and are forecast to be 4.4% higher in 2023 over 2022***. After a tough few years in fixed income markets, with inflationary pressures and rising interest rates, bonds are now looking more attractive with yields high, risks diminishing and the economic cycle turning. This means fixed income funds may once again have real appeal for investors. 

 

Ten funds yielding 5% or more^ 

 

Murray International Trust: 8.5% 

As the name suggests, this trust holds an international portfolio of UK and global equities, as well as some bonds and has a focus on maintaining an above-average yield for investors. We like the fact the trust focuses on defensive business generating high, sustainable earnings and dividends, without paying over the odds. 

 

TwentyFour Dynamic Bond: 8.1% 

This fund has a flexible approach in order to take advantage of changes in market conditions, investing across the whole range of fixed interest assets. The income produced is usually one of the highest in the sector but will fluctuate as economic and market conditions change. 

 

BlackRock World Mining Trust: 7.3% 

This is a specialist trust offering exposure to mining and metals companies globally. In addition to investing in quoted securities, the trust may also invest in royalties derived from the production of metals and minerals, physical metals, and unquoted securities. 

 

M&G Emerging Markets Bond: 6.7% 

The manager of this fund uses her vast skill set to analyse the macroeconomic environment, and individual companies, to pick the best mix of emerging market bonds for this portfolio. The fund can invest in both government and corporate bonds, denominated in local currencies or in the US dollar (‘hard’ currency). 

 

Premier Miton Strategic Monthly Income Bond: 5.9% 

This fund was launched in September 2020 and targets a steady monthly income, while minimising volatility. It aims to provide a better risk-adjusted income compared to both bond funds and equity income options. This fund is highly active.  

 

Aegon Diversified Monthly Income: 5.9% 

This is a truly diversified, multi-asset fund, with a mixture of bond, equity, property and alternative exposure. The fund is well-resourced, supported by a 12-strong multi-asset team and other specialist asset-class teams across the group. 

 

JPMorgan China Growth & Income: 5.9% 

This investment trust invests in ’Greater China’ companies, which are quoted on the stock exchanges of Hong Kong, China, and Taiwan, including A-Shares listed in Shenzhen and Shanghai or which derive a substantial part of their revenues or profits from these territories. The managers are growth-oriented investors targeting higher quality companies that also pay an income. 

 

Liontrust Sustainable Future Monthly Income Bond: 5.8% 

As the name suggests, the fund aims to produce a monthly income with some capital growth by investing in sustainable ideas supported by Liontrust’s Sustainability Metric rating. It does this by investing mainly in corporate bonds and some government bonds. While doing this, the fund has the flexibility to move between shorter or longer dated bonds in order to take advantage of changes in interest rates. 

 

VT Gravis Clean Energy Income: 5.6% 

This fund taps into the expertise of the Gravis group to create a portfolio of renewable energy and energy-efficiency related projects that are benefiting from the secular move to more sustainable energy demands. It looks to generate an attractive income, alongside modest capital growth, from a spread of different projects that should deliver defensive, uncorrelated performance. 

 

IFSL Marlborough Multi Cap Income: 5.5% 

The team behind this fund are specialists in UK smaller companies investing, so this multi-cap fund offers something radically different to the majority of large-cap, FTSE 100-focused equity income funds. It aims to combine fast and sustainable dividend growth with capital appreciation. The fund uses a blend of ‘value’ and ‘growth’ holdings to meet its yield objective. 

 

 

*Source: The Guardian, 17 December 2023  

**Source: Financial Times, 5 January 2024 

***Source: Janus Henderson Global Dividend Index, Q3 2023 

^Source: FE Analytics, rebased in pounds sterling, 13 January 2024 



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