Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Four income products on ‘favourite funds’ list
It can be a hard job picking funds given there are thousands of products available on the market. In a bid to help retail investors filter the funds universe, stockbrokers and investment platforms are increasingly publishing lists of their preferred funds, based on a range of criteria.
AJ Bell is the latest investment platform to publish a list of ‘favourite funds’. It has called upon the services of Square Mile, an investment consultant and research group, to select the funds for its list. There are 72 active and passive products in total.
They have been separated into various categories on AJ Bell Youinvest’s website such as style of the fund or geography, to make it easier for you to filter the selection.
How were the funds chosen?
Square Mile scanned the market using a range of criteria including: value for money, a proven track record compared to their benchmark and peers as well as the all-important strength of the management team.
For actively-managed funds, Square Mile has assessed products on additional criteria such as if each underlying portfolio is suitably diversified.
Tell me more about the funds
Shares will look at funds on the list in more detail over the coming months. We will talk to various experts to get their views on the products as well as explaining what Square Miles thinks of certain funds.
To kick-start our series, we now look at four income funds from across the globe which can provide diversification and, all things being well, decent returns.
CF Woodford Equity Income (GB00BLRZQ620)
Dividend yield: 3.4%
Annual fee: 0.75%
Annualised return over past three years: n/a
Neil Woodford is one of the UK’s most well-known fund managers. Morningstar senior analyst Peter Brunt says: ‘The fund benefits from one of the most talented fund managers in the equity income space.’
Woodford UK Income has around 100 holdings, although the top 10 account for around 40-60% of the portfolio. It is in the IA UK Equity Income sector and has consistently beaten its peers over a long period of time.
Despite the bulk of the portfolio being invested in the larger and more liquid companies, Woodford’s style is to also have an allocation of early stage companies.
That’s because the fund also aims to provide capital growth as well as income, which is something smaller companies can help to achieve.
JP Morgan US Equity Income (GB00B3FJQ599)
Dividend yield: 2.2%
Annual fee: 0.93%
Annualised return over past three years: 20.01%
Top holdings include: Wells Fargo, Bank of America and Exxon Mobil.
Square Mile describes this fund as taking ‘a fairly simple approach to investing’ and is designed so that investors don’t get too many nasty surprises. It invests primarily in blue chip stocks.
Jake Moeller, head of research for the UK and Ireland at financial analysis group Lipper, suggests the fund has a lot of ‘US dividend aristocrats’ which are good for income but can be highly rated stocks.
‘US dividend aristocrats’ is a term to describe a group of S&P 500 stocks with a very long track record of increasing their dividend every year.
Clare Hart manages the fund and has been lead manager since its launch in 2008 in the UK. Morningstar analyst Fatima Khizou says investors in this fund benefit from an experienced and long-tenured manager with a thoughtful approach.
The fund offers good value for money according to Square Mile.
Jupiter Asian Income (GB00B559X853)
Dividend yield: 3.8%
Annual fee: 0.98%
Annualised return over past three years: n/a
Top holdings include: Samsung, Taiwan Semiconductors and Sands China.
This fund only launched last year but has plenty of appeal according to Square Mile. ‘We consider this fund to be a strong offering for investors looking to access the region’s long term income and growth potential,’ it comments.
Moeller at Lipper says Jupiter is a good home for fund manager Jason Pidcock who has more than 20 years’ experience with Asian stocks. He says ‘the asset manager encourages individual franchises, allowing them flexibility’.
This philosophy is especially helpful in the Asian markets, which has a history of being particularly volatile.
According to Square Mile, Pidcock favours growing companies where he can understand their business models and which he thinks are sustainable and scalable.
While the fund has ‘Asian’ in the title, it actually covers the Asia-Pacific region, including Australasia. One of its top holdings includes Australia-based Macquarie, the global investment bank and asset manager.
Newton Global Income (GB00B8BQG486)
Dividend yield: 3%
Annual fee: 0.79%
Annualised return over past three years: 17.29%
Top holdings include: Microsoft, Western Union and Reynolds American.
Although having a global remit, in recent years the fund has focused more on the US market and no longer has exposure to emerging markets.
Moeller at Lipper says Newton is probably one of the first fund groups to ‘get its head round a global income suite’, although always has a defensive bias.
Square Mile says despite the changes to the fund management team over the past year, it does ‘not believe there will be a significant departure from the longstanding philosophy and process this fund adheres to’. (DS)