A guide to fixed interest investments
I can think of a whole list of things that are boring and mundane… but that are also good for us....
2020 was not a great year for income investors. Not only did it become clear that interest rates would remain close to zero for a long time to come, but dividends were also slashed around the world, as companies fought to survive the global pandemic.
Income investors are no doubt wondering where to turn. But despite all the doom and gloom, there are pockets of yield in most asset classes. Here, we highlight six funds and investment trusts still yielding more than 4.5%, which could be considered for this year’s ISA.
Please bear in mind that these yields are not guaranteed and can fluctuate.
This unconstrained and concentrated global high yield bond fund was launched in 2019. The manager is very experienced and has an excellent track record in navigating the extra risk in the sector whilst achieving above average returns. Mike’s experience and the fund’s flexibility to also short some positions allows him to find opportunities others may miss or avoid. The running yield on the fund is currently 6.85%*
Managed by Job Curtis for 30 years now, this trust invests predominantly in larger UK companies with international exposure. It has a yield of 5.42%* and has increased its dividend payment every year for the past 54 years. It has been able to do this through occasional use of its revenue reserve: investment trust managers can hold back up some of their income in good years and dip into the pot in bad years like 2020 to help maintain income pay-outs.
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%*.
As the name suggests, this investment trust offers an international portfolio of UK and global equities, as well as some bonds. The manager may invest anywhere in the world and in any sectors, with a focus on maintaining an above-average yield for investors. The current yield is 5%* and the portfolio has both its largest equity and bond weightings to Asia and emerging markets**.
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%**
The managers of this multi-asset income fund adopt a value-focused style and have the flexibility to invest across all asset classes. These include UK and overseas equities, fixed income, property and specialist investments held through third-party funds. Save for the regulatory requirements, this is a go-anywhere portfolio without any constraints. The fund has an historical net yield of 4.7%*.
*Source: fund fact sheet, 31 January 2021
**Source: Gravis website, 26 February 2021