6 funds paying 5% income or more

Ryan Hughes
2 January 2019

Ryan Hughes, head of active portfolios at AJ Bell, comments:

“Stock markets had a rough ride at the back end of 2018 and there is still a huge amount of uncertainly as we enter 2019.  One thing that could support UK stocks is the healthy dividends on offer, with the FTSE 100 forecast to yield 4.9% this year.

“Picking individual stocks to find this yield can be difficult and increases the risk of disappointment if a particular firm has to cut its dividend.

“This is where funds can add a useful level of diversification, so we’ve unearthed some mainstream funds and investment trusts that pay out more than the average 4.9% that is forecast for the FTSE 100 this year and hence could be useful options for investors to consider in these choppy markets.

Six funds yielding 5% or more:

Artemis High Income 
Yield: 5.9%
“Launched more than 10 years ago, this fund has around 80% of assets in fixed income and the rest in stock markets, meaning the managers can make a call between which is most attractive. Manager Alex Ralph can also invest across the globe, meaning she can hunt out more attractive yields. The fund has delivered annualised total return over the past three years of 4.5%.”

Unicorn UK Ethical Income
“This fund aims to generate a return of 110% of the yield from the FTSE All-Share over a three-year period. Managed by Fraser Mackersie and Simon Moon, the fund invests in 50 investments, focused more on small and medium-sized companies. The fund was only launched in April 2016, so doesn’t have three-year returns figures yet.”

Janus Henderson Far East Income
“Managed by Mike Kerley, this investment trust invests in the Asia-Pacific region and is focused on growing its dividend and capital growth each year. Dividends are rapidly growing in the region, and the fund offers investors a different source of income from UK-listed companies. In the year to 31 August 2018 the payout grew from 20.8p to 21.6p – an increase ahead of UK inflation, although its capital returns were not as impressive. That said, it has delivered annualised total returns of 12.5% over the past three years.” 

TwentyFour Income
“Launched in March 2013, this trust invests in a mix of European and UK asset-backed securities, such as mortgage-backed securities, car loans and credit cards. It also focuses on floating-rate bonds, where the interest paid out increases as interest rate rises. It aims for a yield of 6% and is delivering just above this at the moment, and has delivered 6.6% annualised total return over the past three years.”

Kames Property Income 
“This property fund shuns much of the London region and instead aims to invest in smaller commercial properties outside of the capital. Managers Richard Peacock and David Wise recently bought nine trading estates and three warehouses in cities such as Birmingham, Brighton and Norwich. The fund has delivered annualised total returns of 4.9% over the past three years. Anyone investing should focus on liquidity, following the redemption restrictions on property funds after the Brexit vote, but this fund was one of the few to remain open.”

Woodford Income Focus
“Feted fund manager Neil Woodford has not had an outstanding year, but he did build his career on a stellar performance and has rebounded from periods where his style has been out of favour before. He is also very focused on delivering a dividend to investors. The fund is currently 97% invested in UK stocks, but has the ability to invest around the world in the future. Big holdings at the moment are in tobacco and housebuilding, so you’ve got to believe in those sectors to believe in the fund.”

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