I have been giving the problem of poor returns on cash considerable consideration. So what do you do if you need a realistic income yield from your capital?
Equity Release
I am anti this approach as this is simply raising a packaged loan secured against your home where you receive income in exchange for part of the value of your house and/or potentially an escalating loan that will need to be repaid one day.
Structured Products
Income Deposit Plans are typically 6 years in length and pay, say between 5% & 7% per annum depending on terms and qualification requirements i.e. pays this on a quarterly basis as long as the FTSE 100 remains between 4,500 & 7,000 or +/- 21% of the initial underlying level with the level expanding +/-6% every year
Deposit Plans are typically 3, 5 or 6 years in length and may pay at maturity up to 17%, 28% and 50%, respectively.
The actual terms need to be reviewed carefully and suggest professional advice is required.
Fixed interest funds
These include :-
Corporate Bond Funds – M&G Strategic Corporate Bond (yielding 3.6%), Threadneedle Corporate Bond (yielding 4.2%), Close Bond Income Portfolio (yielding 3.5%) and Fidelity MoneyBuilder Income (yielding 3.9%)
Strategic Bond Funds – M&G Optimal Income (yielding 3.9%), Jupiter Stregic Bond (yielding 5.4%) and Fidelity Strategic Bond (yielding 3.2%)
High Yield Bond Funds – Threadneedle High Yield Bond (yielding 8.0%), Baille Gifford High Yield Bond (yielding 6.3%), AXA Global High Income (yielding 6.5%) and Kames High Yield Bond (yielding 6.4%)
– all are above at least 1% more than the best cash ISA rates.
It is important to remember that the capital value of bond funds will trend to follow the sentiment and expectations of the wider economy to a greater or lesser extent. It is expected that a good fund manager should be able to hold the payout if further turbulence lies ahead.
If you are willing to accept a greater capital volatility, you could look to equity income funds. Please remember that you are focussing on payouts rather than the day-to-day capital value movements.
These include :-
UK Equity Income Funds – Invesco Perpetual High Income (yielding 3.9%), Trojan Income (yielding 4.3%) and Fidelity MoneyBuilder Dividend (yielding 4.8%)
UK Equity & Bond Income Funds – Ecclesiastical High Income (yielding 4.7%), Jupiter Monthly Income (yielding 5.1%) and Close Brothers Diversified Income Portfolio (yielding 2.4%)
North American Income Funds – JPM US Equity Income (yielding 2.3%), Jupiter North American Income (yielding 1.7%), Legg mason UK Equity Income (yielding 2.4%) and Neptune US Income (yielding 4.4%)
Global Equity Income Funds – Newton Global High Income (yielding 4.8%), Invesco Perpetual Global Equity Income (yielding 3.3%), Aberdeen World Growth & Income (yielding 4.6%) and Baille Gifford Global Income (yielding 4.5%)
Emerging Markets Income Funds – UBS Emerging Markets Equity Income (yielding 5.7%)
Asian Income Funds – Newton Asian Income (yielding 5.1%), Schroder Asian Income (yielding 4.7%), L&G Asian Income (yielding 5.3%) and Henderson Asian Dividend (yielding 4.9%)
With Equity Funds :-
- It is important to focus on funds with a good track record of performance and payout growth
- Payout growth doesn’t have to mean every stock in a fund must grow its yield. (A significant proportion of growth in dividends comes from businesses “normalising” dividend payouts.)
- There are some outstanding UK equity income funds, but to invest solely in the UK is to miss out on some fantastic potential globally.
- It is expected that the greatest investment opportunities may lie in Global and Asian markets.
- There are also companies outside the UK who may have less debt on their balance sheet and some fo the regulatory changes will encourage higher dividend payouts.
Investors may be avoiding Asia and Global markets because of perceived risk but it is clear they could be missing out or at best limiting the diversity of their portfolio.
My contact details are :- tel 029 2020 1241, email welshmoneywiz@virginmedia.com, twitter welshmoneywiz, linkedin Darren Nathan
