Pure income – 5 bond funds paying over 5% income
Regardless of what is happening in the UK economy, one of the most frequent demands put on our capital is to provide us with income. From fully capital protected bank deposits paying a fixed or variable rate of interest, a capital at risk investment paying a variable income and everything in between, the options are vast. With this in mind, we bring you five bond funds paying at least 5% income, all from our Select Range of investment funds and all available at 0% initial charge via the Fair Investment Fund Supermarket.
In putting together our bond fund selections, we used the following criteria:
Paying at least 5% income
All of the funds have a distribution yield* of at least 5%. The lowest income is 5.25% whilst the top paying fund is currently yielding 6.60%.
0% initial charge
All of the funds have a 0% initial charge. The Fair Investment Fund Supermarket also offers investors access to lower cost share classes not available when investing directly resulting in savings of up to 4.5% on standard initial charges or £450 per £10,000 invested.
Payment frequency of at least quarterly
On the basis that receiving income at least quarterly was an important consideration for investors seeking income, three of the funds pay income quarterly whilst the other two pay monthly.
Taken from our Select Range of funds
Our Select Range of funds is based on investment analysis carried out by leading independent research and ratings company Morningstar OBSR (click here to read more about how our Select Range of funds is selected).
Minimum Bronze rating
The top three ratings given by Morningstar OBSR, Gold, Silver and Bronze, indicate that a fund is highly regarded by their team of analysts. The very highest ratings are given to funds which, in the analysts’ opinion, have the strongest ability to outperform their benchmark and peers over time, within the context of the risks taken – the stronger the conviction, the higher the rating. Two of the funds have a Bronze analyst rating, one Silver and two Gold.
The funds are ranked based on their Morningstar OBSR rating starting with the highest rated Gold funds:
The Royal London Corporate Bond fund is Gold rated by Morningstar OBSR and has a current distribution yield of 5.29% with quarterly income payments. Its aim is to achieve a combination of mainly income with some capital growth over the medium to long term (5 to 7 years) by investing in a broad range of sterling fixed interest assets. The majority of the 216 holdings within the fund are with BBB and A rated credit institutions.
The fund was launched in 1999 and is almost £0.5 billion in size. It is managed by Sajiv Vaid and has consistently outperformed its benchmark producing a cumulative return of 4.33%, 26.41% and 70.28% over the last one, three and five years respectively and was ranked in the top quartile over each of these timeframes. The fund has a total ongoing charge of 0.95% and is available at 0% initial charge.
This fund was launched in 1999 and the current management is split between Paul Causer, Paul Read and Ciaran Mallon who together have secured a Morningstar OBSR Gold rating. Now almost £4 billion in size, the aim of the fund is to achieve a high level of income together with capital growth over the long term by investing primarily in corporate and government high yielding debt securities globally as well as equities (up to maximum of 20%).
Of the 444 current total holdings, around two thirds are with B to BBB credit rated institutions with just under 18% of the fund is in equities. The fund has produced 8.36%, 25.60% and 116.16% over the last 1, 3 and 5 years respectively and has a current distribution yield of 5.25% with income payments made at the end of each month. Ongoing annual fund charges are 0.67% and the fund is available at 0% initial charge.
The aim of this fund is to provide a return by investing primarily in sterling denominated preference shares, Government securities, corporate bonds, Eurobonds and other bonds.
The fund was launched in 1978 and is now over £600 million in size consisting of 211 holdings, the majority of which are in high yield and investment grade corporate bonds (51.6% and 33.1% respectively). It has a current distribution yield of 6.1% and makes income payments quarterly.
The fund is Silver rated by Morningstar OBSR and has produced a cumulative return of 6.2%, 21.0% and 97.9% over the last 1, 3 and 5 years respectively. The fund has total ongoing charges of 0.73% and is available at 0% initial charge through the Fair Investment Fund Supermarket.
This fund was launched in 1999 and is now over £831 million in size. Not only does it have the highest distribution yield* of our five bond fund selections at 6.60%, it also pays income monthly which seems to be the favoured choice for income investors, especially those looking to supplement income.
The fund is managed by Barrie Whitman (since launch) and David Backhouse and has the simple aim of providing income. The fund invests at least two thirds of its assets in high income paying bonds issued by companies worldwide with the top three sector holdings covering media, services and telecommunications. The fund has produced a cumulative return of 7.9%, 20.1% and 98.2% over the last one, three and five years respectively. The fund is Bronze rated by Morningstar OBSR, has a total ongoing charge of 0.75% and is available at 0% initial charge.
Our final fund aims to provide an income and grow the value of your investment over the long term. The fund invests primarily in bonds issued by governments, institutions or companies in emerging markets which are predominantly issued in the currency of the issuing country. The fund can also invest in derivatives.
The average credit rating of the fund holdings is BBB with the majority held in BBB and A rated credit institutions whilst the top 3 geographical allocations are Turkey, Russian Federation and Mexico. The fund is over £1.1billion in size and the current distribution yield is 6.32% with quarterly income payments. The fund is Bronze rated by Morningstar OBSR, has total ongoing charges of 0.91% and is available at 0% initial charge via our Fund Supermarket.
Fair Investment Fund Supermarket
With over 2,100 funds from over 95 fund management groups, the Fair Investment Fund Supermarket offers a vast choice of income funds, many of which have 0% initial charge and low annual management charges, including low cost trackers, bond funds, UK equity income funds and managed funds.
Tax free income via the Fair Investment Fund Supermarket ISA
Remember that if your investment is held within an ISA, the income paid is not then subject to tax. By maximizing your new ISA allowance (currently £11,880) as soon as possible, you can benefit from tax free income straight away and when the ISA allowance increases to £15,000 on 1sy July, you can simply top up your ISA investment.
* The Distribution yield reflects the amounts that may be expected to be distributed over the next twelve months as a percentage of the Fund’s net asset value per share as at the date shown. It is based on a snapshot of the portfolio on that day. It does not include any initial charge and investors may be subject to tax on distributions.
All fund data correct as at 28/02/2014
No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice. Tax treatment depends on your individual circumstances and may be subject to change in the future.
The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. Different types of investment carry different levels of risk and may not be suitable for all investors. Past performance should not be taken as a guide to the future and there is no guarantee that these investments will make profits; losses may be made. If the currency of the Investec fund differs from your domestic currency, your returns may increase or decrease as a result of currency fluctuations.