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As the end of the tax year nears, we have revamped the Telegraph Income 10, a shortlist of our favourite funds for Isa and Sipp investors seeking regular payouts from their investments.
The Income 10 is produced alongside the Telegraph 25, the definitive list of our favourite funds. It is intended as a more specialised list targeted at investors with a need for income. Most, but not all, funds on the Income 10 also feature on the Telegraph 25.
Income investors won’t need reminding of what a tough year it has been. This time 12 months ago, British companies were delivering the first trickles of what became a flood of dividend cuts as the pandemic hammered profits.
By the end of 2020, payouts had crashed 44pc and estimates from Link Group’s Dividend Monitor suggest they won’t recover their pre-pandemic levels until 2025 at the earliest. Large areas of the bond market, a traditional source of income, have meanwhile sold off sharply since the turn of the year amid fears over rising inflation.
But it’s not all bad news. Some funds, even those investing in British stocks, managed not only to maintain the income they provide to their investors, but raise it last year.
Investing overseas for income also presents opportunities. These stock markets may not have traditionally paid as much income as London-listed shares, but they are growing those payouts.
And not all bond funds have been hit by the sell-off this year. By avoiding the worst-hit areas of that market, those on our Income 10 have continued to grow their value.
1. City of London
No trust boasts a better dividend record than City of London, which has raised its payout in each of the past 54 years. This is combined with a high yield, of 5.2pc, from its investments mostly in British stocks listed on the FTSE 100, making the trust a solid income pick.
Charge: 0.36pc | Ticker: CTY | Five-year return: 29pc | Yield: 5.2pc
2. Man GLG Income
Henry Dixon, manager of the £1.8bn fund, doesn’t confine his search for dividends to British blue-chips. “Mid-cap” stocks from the FTSE 250 also feature, making up a third of his fund. Mr Dixon’s strong track record sees his fund replace Ardevora UK Income, which has shrunk in size.
Charge: 0.9pc | Cheapest share class: D | Five-year return: 42pc | Yield: 4pc
3. TwentyFour Dynamic Bond
This fund has free reign to invest in whichever bonds the managers see fit. Solid returns, a 3.9pc yield and a broad spread of government and corporate bonds from around the world make for a good pick.
Charge: 0.78pc | Cheapest share class: I | Five-year return: 32pc | Yield: 3.9pc
4. Invesco Monthly Income Plus
A mix of bonds with a small portion of dividend-paying shares produces this fund’s 4.3pc yield, paid monthly, and solid returns. Last year, Paul Read, who had managed the bonds portion of the fund with Paul Causer since 1999, stood down.
He has been replaced by Rhys Davies, who has worked alongside both for seven years and is viewed as a safe pair of hands by analysts. Ciaran Mallon runs the shares portion.
Charge: 0.67pc | Cheapest share class: Y | Five-year return: 32pc | Yield: 4.3pc
5. TR Property
TR Property is an unusual investment trust in that the bulk of its portfolio is made up of shares in European property companies, though it does also own some buildings in the UK. That structure means it is easier for manager Marcus Phayre-Mudge to switch investments when markets change.
The trust yields 3.8pc and crucially has held its dividend during the pandemic, making use of reserves. Standard Life Investments Property Income, which it replaces, was forced to cut.
Charge: 0.87pc | Ticker: TRY | Five-year return: 54pc | Yield: 3.8pc
Telegraph’s favourite funds
6. Artemis Income
Offering a yield of 4pc, this £4.5bn fund has consistently beaten the average returns of rivals and the stock market, even during a grim 2020 for dividend hunters. Managers Adrian Frost, Nick Shenton and Andy Marsh invest predominantly in FTSE 100 stocks.
Charge: 0.8pc* | Cheapest share class: I | Five-year return: 40pc | Yield: 4pc
7. Premier Miton UK Multi Cap Income
Gervais Williams and Martin Turner’s £900m portfolio was the best-performing fund investing in British dividend-payers last year, and one of only three to deliver a positive return. The managers, who seek to generate income from British stocks of all sizes, bucked a grim year for UK income investors thanks in part to insurance against a big FTSE 100 sell-off, which they cashed in as the pandemic hit.
Charge: 0.81pc | Cheapest share class: B | Five-year return: 49pc | Yield: 3.1pc
8. Artemis Global Income
Manager Jacob de Tusch-Lec has a bias towards “value” investing. That style has been out of fashion and was hit hard in the pandemic, but the last year brought a return to form for a manager with a strong long-term track record. The £1.2bn fund is up 57pc over the last 12 months.
Charge: 0.83pc* | Cheapest share class: I | Five-year return: 53pc | Yield: 2.9pc
9. Scottish American
This £756m investment trust may offer a lower yield than others on this list, at 2.7pc, but it has combined that income with strong capital returns. The shares have returned 113pc over the last five years, from a mix of mostly shares from around the world, combined with property and bonds.
Charge: 0.7pc | Ticker: SAIN | Five-year return: 113pc | Yield: 2.7pc
10. International Public Partnerships
Offering investors access to different income-paying assets to the other funds on the Income 10, this £2.7bn trust invests in infrastructure. Investments in schools, hospitals, court buildings and military housing produce its 4.6pc yield.
Charge: 1.09pc | Ticker: INPP | Five-year return: 46pc | Yield: 4.6pc
*Fund is available for a cheaper price on Hargreaves Lansdown
Our favourite funds for income