Top 5 Bond Funds Paying Over 5% Income

Regardless of what is happening to the UK economy and to the UK stock market, one of the most frequent demands put on our capital is the need to provide us with an income.

From capital protected bank deposits paying a fixed rate, capital at risk investments offering variable income, and everything in between, the options are vast. With this in mind, we bring you five bond funds paying over 5% income, all from our Select Range of investment funds and all available at 0% initial charge via the Fair Investment Fund Supermarket.

 

Fund criteria

This month’s bond fund selections are based on the following criteria:

Paying at least 5% income
All of the funds have a distribution yield* of at least 5%. The lowest income is 5.30% whilst the top paying fund is currently yielding 6.64% (as at 31/03/2015).

0% initial charge
All of the funds have a 0% initial charge via the Fair Investment Fund Supermarket.

Payment frequency of at least quarterly
On the basis that receiving income at least quarterly continues to be an important consideration for investors seeking income, three of the funds pay income monthly whilst the other two pay quarterly.

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 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. Three of the funds have a Bronze analyst rating and the other two are Silver rated.

The funds are ranked based on their Morningstar OBSR rating, starting with the highest:

1. Kames High Yield Bond – 5.52% yield

The Kames High Yield Bond Fund is Silver rated by Morningstar OBSR and has a current distribution yield of 5.52% with monthly income payments. Its primary investment objective is to maximise total return (income plus capital) by investing in a portfolio of predominantly high yield bonds, selected investment grade bonds and cash. The majority of the 135 holdings within the fund are with B rated credit institutions or above.

The fund was launched in 2002 and is over £1.5 billion in size. It is managed by Philip Milburn and Claire McGuckin and is ranked top quartile over five years and since its launch, and has produced a cumulative return of 2.95%, 22.91% and 45.97% over the last one, three and five years respectively. The fund has an ongoing annual management charge of 0.75% and is available at 0% initial charge.
Click here to find out more and to apply »

2. Henderson Preference and Bond – 5.30% yield

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 £680 million in size consisting of 199 holdings, the majority of which are in high yield and investment grade corporate bonds (51.3% and 34.5% respectively). It has a current distribution yield of 5.30% and makes income payments quarterly.

The fund is Silver rated by Morningstar OBSR and has produced a cumulative return of 7.4%, 30.1% and 35.1% over the last 1, 3 and 5 years respectively. The fund has an ongoing annual management charge of 0.60% and is available at 0% initial charge through the Fair Investment Fund Supermarket.
Click here to find out more and to apply »

3. Threadneedle High Yield Bond Fund – 6.10% yield

This fund was launched in 1999 and is now over £789 million in size. Managed by Barrie Whitman (since launch) and David Backhouse, it has the simple aim of achieving a high level of monthly income. The fund invests at least two thirds of its 279 holdings in high income paying bonds issued by companies worldwide with the main sector focuses being telecommunications, media, basic industries and the automotive industry.

The current distribution yield is 6.10% with payments made monthly whilst the fund has produced a cumulative return of 3.75%, 26.52% and 40.30% over the last one, three and five years respectively. The fund is Bronze rated by Morningstar OBSR, has a total ongoing charge of 0.60% and is available at 0% initial charge.
Click here to find out more and to apply »

4. Aberdeen High Yield Bond – 6.64% yield

This fund was launched in 2011 and is currently managed by the Euro High Yield team at Aberdeen which has secured a Morningstar OBSR Bronze rating. The newest and smallest fund in our selections at £33 million in size, the aim of the fund is to provide income and some capital growth by investing mostly in bonds issued by companies, governments and other organisations based in the UK or other European countries.

Of the current 132 total holdings, around 82% are with B rated credit institutions or above and the fund has produced calendar year returns of 2.02%, 8.00% and 25.14% over 2012, 2013 and 2014 respectively. It has the highest distribution yields of our bond fund selections at 6.64% with income payments made at the end of each month. Ongoing annual management charges are 0.50% and the fund is available at 0% initial charge.
Click here to find out more and to apply »

5. Investec Emerging Markets Local Currency Debt Fund – 6.38% yield

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 Brazil,, Malaysia and Indonesia. The fund is £1.2 billion in size and the current distribution yield is 6.38% with quarterly income payments. The fund is Bronze rated by Morningstar OBSR, has an annual management charge of 0.75% and is available at 0% initial charge via our Fund Supermarket.
Click here to find out more and to apply »

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, nearly all 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 fee 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 £15,240) as soon as possible, you can benefit from tax free income straight away.

Compare monthly income high yield bond funds »

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*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 31/03/2015

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. Please refer to the fund factsheet for specific fund risks.

Written by Isabel Buxton ,
12th May 2015