As many advisers know to their chagrin, client appetite for income has increased as chronic economic unease has developed out of the 2008 financial crisis – and at precisely the time that income streams seemed to evaporate.
UK inflation is above target at 2.2 per cent, UK 10-year government bonds yield 1.76 per cent and a best-buy easy access saving account offers 2.5 per cent. In this environment, fixed income funds have benefited from huge retail inflows.
However, a focus on total return performance – a combination of growth and reinvested income – can obscure which fund managers are generating the best income streams.
So, using data compiled by Morningstar, we can identify which funds have offered the highest income yield in the past 12 months to November 9 and which, on this basis, may be due adviser consideration for income-hungry clients.
All of the top-20 income-yielding funds produced a yield in excess of 6.9 per cent for the period stated. It is important to note that these are annualised income figures, with income payments varying from monthly to quarterly depending on the fund arrangement.
The top performer is £51.3m Marlborough High Yield Fixed Interest, managed by Paul Reed and Mark Sanders, which produced an impressive 12-month income yield of 9.8 per cent. Over the 12-month period, Marlborough High Yield Fixed Interest produced a cumulative return of 15.1 per cent.
Launched in November 2004, the fund invests primarily in international bonds, 53.9 per cent of the portfolio, largely from developed Europe at 44 per cent and also domestic, UK bonds at 40.9 per cent.
According to the November factsheet, the fund is largely exposed to fixed income securities rated B, 42.1 per cent, and BB, 20.6 per cent, quality, with overwhelmingly shorter-dated maturities; 79 per cent of the fund’s holdings mature within 0-5 years.
The next best income-producing fund was the £60.1m Aberdeen Global Select Euro High Yield Bond, which also focuses on the sub-investment grade global bond market and is primarily exposed to euro-denominated securities.
Classified in the IMA Global Bonds sector, its cumulative return over 12 months to November 7 is 7.1 per cent, the lowest cumulative return of the top-20 income yielding funds listed by Morningstar.
Launched in October 2005, the stated aim of the Sicav is to deliver a long-term total return, compared with Marlborough’s investment objective of “providing a high level of income with the opportunity for some long-term capital growth”.
The Aberdeen fund’s largest sector exposure is to services at 25.2 per cent, followed by other at 15.1 per cent, basic industry is 14.1 per cent and banking is 11.3 per cent.
The third-highest income-yielding fund, according to the Morningstar data is the £23.8m Insight UK Equity Income Booster, which beat its own ‘enhanced income’ yield target of 8 per cent to produce a 9.1 per cent yield over 12 months to November 7.
Launched in March 2009 and managed by Tim Rees and Takis Anastassopoulos, the fund produced an accumulative return of 13.3 per cent over the 12-month period. The fund favours large-cap, UK-listed financials, with an 18.4 per cent weighting, but also has a large cash and equivalents exposure of 17.5 per cent.
