The perennially popular Invesco Perpetual Monthly Income Plus Fund invests in bonds and equities aiming to deliver a total return to investors of some capital growth and a monthly income.
The fund is managed by Neil Woodford, looking after the equity investments, and Paul Read and Paul Causer responsible for managing the fund’s bond investments. We take a closer look at the current approach of the fund.
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The Monthly Income Plus Fund primarily invests in fixed interest assets, corporate and government bonds. This asset type makes up around 80 per cent of the portfolio as the fund aims to deliver a high level of monthly income.
In the latest fund update, the fund managers said yields on corporate bonds were now more modest but there were opportunities, notably in banks and other financial businesses.
“We think the combination of structural reform, conservative interpretations of Basel III guidelines and rising capital levels will be a powerful support for subordinated bank debt for years to come,” the fund managers said.
The latest market update also showed that the 12 month European default rate for high-yield companies – those with lower credit ratings – had fallen.
Neil Woodford who is the lead manager on the Invesco Perpetual Income Fund and High Income Fund, looks after the equity investments in the Monthly Income Plus Fund.
Recently Woodford has come under scrutiny about the performance of his funds, which has been lower compared to other funds investing in the same sector.
The cumulative performance of the Income Fund over five years is 27.59%, putting the fund in the top quartile or top 25% of funds in the Investment Management Association (IMA) UK Equity Income sector. More recently the fund has been ranked in the third quartile of funds.
In a recent interview, Woodford said: “The reason we’ve had a difficult period is because my focus on valuation has not chimed with the market’s focus with momentum.
“I am, however, absolutely convinced that, in the long-term, the valuation and fundamentals of a company are the only things that matter, and, like gravity, those things will reassert themselves.”
The companies invested in include pharmaceutical firms and the tobacco industry which are delivering growth in earnings, cash flow and dividends, but other sectors have benefitted from market expectations of economic recovery such as mining and oil firms.
Woodford believes some of the market expectations of earnings progression are ‘very optimistic’ and may not be delivered, while he believes the gap between prices on some firms and their fundamental value is ‘stretched astronomically’ giving a once in a 25-year opportunity to buy shares at a relatively low value which have the potential for high growth.
On its performance over five years, the Monthly Income Plus Fund has been a top quartile fund in the IMA Strategic Bond sector. The current annual distribution yield of the fund is 6.42 per cent, based on an estimate for the next 12 months. See the table below for more information:
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