The most consistent equity income funds
A long-running survey highlights the best options for income seekers. Laura Suter names this year’s top performers
Income investors do not need to sacrifice growth for regular yield, a new study shows. One leading income fund has paid out 33.5pc in income over the past five years and has delivered a total return of 91pc over that period. The Miton UK Multi-Cap Income fund has handed savers £33.50 of income per £100 invested over the past five years. On the basis of reinvesting the income, the fund has achieved a total return of 90.8pc. Its current yield is 4.5pc.
The figures, compiled by Sanlam, a wealth manager, highlight the most consistent UK income funds over the past six months. The list, which is updated every six months and has been running for 20 years, identifies the funds that have delivered consistent income as well as capital growth.
Funds are ranked according to the income paid out, how stable returns are and recent performance, all over a five-year period.
The fund to have delivered the largest income over the five years is Schroder Income Maximiser. The fund, which has £1bn in assets, aims to deliver 7pc income each year.
Over the past five years it has returned £43.50 of income on £100 invested. The total return, of capital growth and reinvested income, was 65.4pc over the period.
This fund generates some income from the dividends it receives but also uses complicated financial instruments to generate income. These “derivatives” make money by selling some of the potential future growth of the fund’s holdings.
This means that, when markets rise, the fund will typically not grow as much as its peers. However, when markets fall, the fund should not lose as much as rivals.
Some UK income funds have benefited from the fall in sterling since Britain voted to leave the EU, which has boosted the earnings, and dividends, of companies that earn in dollars.
There have been significant changes in the constituents of Sanlam’s tables in the past six months. This, the firm said, highlights the uncertainty facing UK markets and that not all funds have made the right calls.
One example is the Troy Trojan Income fund. The fund was the best performer in Sanlam’s list six months ago, but has now fallen out of the top ranking altogether.
The fund has delivered £24.50 of income on a £100 investment over the past five years and has returned 58.1pc in total. This is not dramatically different from the Franklin UK Equity Income fund, which did make it onto the list, but the Troy fund has been downgraded because of poorer performance in 2016 and its current yield of 3.9pc.
Data from FundExpert, an investment shop, highlights the split in the market. Its research found that 54pc of UK income funds delivered their largest payout last year, but that 25pc of funds cut payouts in 2016 – the highest rate since 2012.