Whether your clients choose to live off the income that is generated or reinvest it, there are multiple benefits: pocketed dividends can supplement their lifestyle or help pay the bills, or compounded interest can further boost capital gains.
Another, less-spoken-about positive associated with monthly income funds is the discipline that is required from fund managers, who aim to deliver a healthy and consistent income stream – come rain or shine.
Here are four of our favourite funds which generate an attractive monthly income.
Artemis Monthly Distribution
This is an excellent ‘all weather’ option for income-focused investors, bringing together the expertise of two of my favourite bond and equity specialists, James Foster and Jacob de Tusch-Lec. We like that they are quick to respond to changing market environments and will position the portfolio accordingly.
What’s more, Artemis Monthly Distribution offers a healthy yield of 4.2%. Over the past five years, performance has been robust with a 45.1% return, which compares to 22.4% by the average fund in the Investment Association’s (IA) Mixed Investment 20-60% Shares sector.
Liontrust Monthly Income
Managers Stuart Steven, Kenny Watson and Aitken Ross target bonds issued by high quality companies, which stand apart from their competitors. They start by analysing the economic backdrop and then consider a company’s ability to meet its debt obligations, the management team’s track record, business strategy, earnings performance plus barriers to entry. They also assess key environmental, social and governance factors before looking at valuations.
This fund has an attractive distribution yield of 5.3% and over the past five years has returned 26.4%, which compares with 22.4% by the average fund in the IA’s Sterling Corporate Bond sector.
Premier Multi-Asset Monthly Income
This monthly income fund is designed to produce a high and sustainable income and has risk management at its core. Manager David Hambidge aims to generate equity-like returns, with less volatility via a multi-asset, multi-manager portfolio.
The fund offers an attractive yield of 5.1% and has returned 30.9% over the past five years, which compares with 22.4% by the IA Mixed Investment 20-60% Shares sector.
Invesco Perpetual Monthly Income Plus
The strength and depth of Invesco’s fixed income team sets the Invesco Monthly Income Plus fund apart from its peers in the sector. The fund primarily invests in bonds but can, and often will, allocate up to 20% to equities.
Managers Paul Causer, Paul Read and Ciaran Mallon look to add value via their credit analysis, as well as anticipating changes in the monetary environment. They aim to buy bonds when they are trading at cheap valuations, while the fund’s equity allocation targets a high and stable level of income.
The combination has paid off, reflected in the fund’s distribution yield of 5.3%. However, performance has been slightly disappointing over the past five years, with a return of 19%. We expect the trio will come into their own in 2019.