High versus growing income – what will you pick this ISA season?

Ryan Lightfoot-Aminoff 20/03/2019 in Income investing

There are plenty of investments that produce an income. From bond funds to property funds, infrastructure funds to plain old UK equity income funds, the choice is vast.

But when you are constructing a portfolio of funds that generate said income, should you opt for those that have a lower but growing yield or those that have already established a high yield?

One advantage of a growing yield is that your future income is building – while an advantage of a higher and established yield is that it provides the income you need right now. Generally speaking, however, most income portfolios should probably have a mix of both.

Here are three of each type for consideration:

High income

1. M&G Emerging Markets Bond

This is the highest yielding Elite Rated fund at 5.9%*. Emerging market debt is a very complex asset class, but manager Claudia Calich is extremely knowledgeable and her track record speaks for itself. She begins by looking at the macroeconomic environment: analysing growth, politics, central bank policies, commodity prices and inflation. She will then look at individual countries and both the government and corporate bonds on offer.

2. Man GLG UK Income

This equity income fund invests predominantly in UK companies and has a bias towards those smaller in scale. The fund’s flexible mandate also means that manager Henry Dixon can invest up to 20% in continental European firms that derive a substantial part of their revenues from the UK or in a company’s bond, rather than its equity, if he feels the risk/reward characteristics are more favourable. It’s current yield is 5%*.

3. LF Seneca Diversified Income

For those looking for a diversified high income stream, LF Seneca Diversified Income fund offers just that: it aims to produce a high level of regular income (currently 4.9%*), by investing directly in UK equities as well as other funds investing in overseas equities, fixed income and property. It also has holdings in specialists funds – such as those investing in aircraft hangers and infrastructure.

Growing income

1. GAM UK Equity Income

This equity income fund invests in UK companies of all sizes – from the very small and those listed on the AIM stock market, through to those in the FTSE 100. While manager Adrian Gosden (who previously co-managed the popular Artemis Income fund) is aiming to generate a yield on the fund that is higher than the yield of the UK stock market, he is also looking for steady dividend growth. The fund was launched in October 2017 and the current yield is 3.95%*.

2. Schroder Asian Income

Asian markets – both developed and emerging – remain an attractive hunting ground for income seekers. This fund, run by Richard Sennitt, invests in good quality, competitively priced businesses that are able to grow and maintain their dividend payouts. It invests across the higher growth Asian economies, excluding Japan but including Australia and New Zealand and currently yields 3.8%.

3. Invesco Global Equity Income

This fund invests in companies all over the world. It has been designed to capture the best regional ideas from the wider Invesco equity income teams, with the manager, Nick Mustoe, aiming to generate a rising stream of income from holdings, rather than simply investing in high yielding companies. The current yield is 3.55%*.

*Source: FE Analytics, 19 March 2019.

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions.Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice.Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.