Investors wanting to make their own choices have access to an inordinate number of resources offering to help them find a new home for their money.
Many ratings and buy lists exist and can be invaluable in helping to avoid traps such as “closet trackers” that do nothing a far simpler fund couldn’t do for a fraction of the cost, or well-known brands selling bog-standard funds at a high price. But even with these aids, investors are still left with baffling array of options.
The Telegraph Money team are frequently asked by readers for suggestions for the best place to house their savings and so launched the Telegraph 25 list of our favourite funds.
To supplement this list, we produced additional lists. The Telegraph Defensive 10 and Growth 10 are for investors who are typically more cautious or those wanting to take on more risk.
Here we turn our attention to income. All three of these lists should be viewed as a way to break up our longer Telegraph 25 into more manageable chunks based on your investment needs. For more information on how we chose the funds and how to use the list, please read our original long list first.
People look for investments that can produce regular payments when in or nearing retirement as a way to supplement their pensions.
To make this list, funds must have proven that they not only pay out a steady and strong income but have also grown the initially-invested cash pot. This means that a high yield is not enough.
Where possible we have used recommendations from the Telegraph 25, as these are the funds that we have the most conviction in. Where there are not enough to complete a list we have supplemented them with additional funds that we consider good.
1. City of London investment trust
Investment trusts have been a great friend to investors who need a steady income. Some trusts have records of continuous dividend increases running to several decades.
City of London, managed by Job Curtis, has the longest record of all: it notched up its 52nd consecutive year of increased dividends in 2018.
Other trusts boast impressive income records too but City of London makes the list thanks to the strong performance of its assets.
Yield: 4.5pc | OCF (ongoing charge figure, a measure of the annual cost): 0.41pc | Cheapest share class: N/A | View latest performance data
2. Ardevora UK Income
The fund, which invests in companies that pay big dividends, is run by Jeremy Lang and William Pattisson, very experienced managers who have evolved their own distinctive approach.
They founded Ardevora several years ago and so have a direct stake in the fund’s success. That the portfolio is relatively small is also a bonus, as it can hold significant stakes in companies of all sizes.
This could prove a valuable benefit if dividends from the giant payers in the FTSE 100 come under pressure. The fund yields around 4.3pc.
Yield: 4.3pc | OCF: 0.63pc (plus performance fee) | Cheapest share class: B | View latest performance data
3. Miton UK Multi Cap Income*
This fund, run by Gervais Williams and Martin Turner, invests mostly in British stocks of all sizes and has achieved significant outperformance since its 2011 launch with far less volatility than many of its rivals.
The fund is spread across 140 stocks, with its top 20 holdings making up just over a quarter of the fund. Experts are keen on Mr Williams’ experience in picking smaller companies, which makes up the bulk of the portfolio.
Indeed, around 20pc is invested in FTSE 100 firms, 30pc in mid and small sized British firms, and 30pc in fledgling stocks listed on the junior Aim market.
Yield: 4.4pc | OCF: 0.81pc | Cheapest share class: B
4. Marlborough Multi Cap Income*
This fund’s manager, Siddarth Chand Lall, has been in charge since launch in 2011.
There are 120 holdings, which means there is less impact on the portfolio if a stock does particularly poorly. This has given the fund below-average volatility despite a bias towards small and medium-sized British businesses.
This has not impacted performance, however, as it has been the second-best performing fund in the British income sector since its launch.
It is an ideal pairing for a more traditional fund packed with familiar large dividend payers.
Yield: 4.5pc | OCF: 0.78pc | Cheapest share class: P
5. Artemis Global Income*
This fund is larger than many on the list at £3.4bn, but as it has a global array of shares to pick from, that is not the concern it otherwise might be.
It is around 40pc invested in America, with significant investments in Europe, which makes up 35pc of the portfolio.
The manager, Jacob de Tusch-Lec, has a bias towards "value" investing, buying out-of-favour companies in the hope they will rebound. He pays attention to the larger economic picture as well, meaning he will shift the portfolio across countries where he sees the most value.
Telegraph Money particularly likes the fact that he avoids businesses that artificially smooth out their dividends by using cash reserves to supplement payouts in poor years and firms with a large amount of debt.
He also has a lot of his own money in the fund, which he has done since it started. When it launched in 2010 used cash Mr de Tusch-Lec and his colleagues as "seed" capital.
Yield: 3.3pc | OCF: 0.83pc | Cheapest share class: I
6. Awaiting replacement
The Woodford Focus Income fund has been suspended and the manager – Neil Woodford – has stepped down from running the portfolio.
As a result we have removed the fund from our recommendations list and are awaiting a replacement. For more information please read our updated Telegraph 25 list.
7. TwentyFour Dynamic Bond
This is a “strategic” bond fund, meaning that the manager is able to select from a wide range of fixed income options, from government bonds to higher-risk corporate ones.
Such funds can be the best option for DIY investors, who will find it hard to pick their way through the data on interest rates and credit ratings that largely dictate the returns from bonds.
Popular with fund-of-funds managers, the TwentyFour portfolio is managed by a team of former bond traders.
Yield: 3.8pc |OCF: 0.77pc | Cheapest share class: I | View latest performance data|
8. Invesco Perpetual Monthly Income Plus
This is largely a bond fund, although there is a small holding in shares.
The bond holdings are managed by Paul Causer and Paul Read, a very experienced pair who have achieved good returns relative to their peers. The stocks in the fund are managed by Ciaran Mallon.
Advisers like the fact that the managers can draw on the deep resources of Invesco Perpetual to research the whole spectrum of bonds. The fund yields 5.6pc.
Yield: 5.6pc | OCF: 0.67pc | Cheapest share class: Y | View latest performance data
9. Standard Life Investments Property Income Trust
Property has become a regular part of the portfolios of many private investors, but there are concerns about the structure of some property funds.
Many “open-ended” funds were forced to halt trading after the Brexit vote in 2016, essentially trapping savers’ money. This makes an investment trust more appealing. Investment trusts operate with a fixed pool of money, whereas open-ended funds have to buy and sell assets in response to swings in demand from investors – not something that can be done quickly in the case of property.
The Standard Life Investments Property Income Trust, managed by Jason Baggaley, is a new addition to this portfolio, replacing the BMO Commercial Property trust. It has high exposure to the industrial property sector – such as factories and warehouses – which is expected to perform well in future.
The trust’s shares, which have been on a premium as high as 23pc, are currently trading at around par value.
We decided to replace the BMO Commercial Property trust after a team of respected analysts at Canaccord Genuity, the bank, downgraded their recommendation to sell. A low yield and lack of dividend cover, as well as a bias towards poorly performing areas of the property market such as retail, meant expected returns from the fund were lower.
Yield: 5.3pc | OCF: 1.8pc | Cheapest share class: N/A | View latest performance data
10. International Public Partnerships*
This trust beats other infrastructure funds in our view thanks to its well-resourced team and the fact that most of its portfolio is in “primary” assets – projects it initially funded – so it does not have to compete in the “secondary” market.
The trust invests across a range of infrastructure types, including transport, schools and energy, and is 70pc invested in Britain, with Australia and Belgium accounting for 10pc each.
At the time of writing it is trading at a 12.7pc premium. When the premium is higher, investors should watch for dips to buy.
Yield: 6.4pc | OCF: 1.2pc | Cheapest share class: N/A
M&G Emerging Markets Bond*
Emerging market bonds are volatile and risky. This fund is split between government and corporate bonds, with investments in a wide range of markets including Brazil, Argentina and Russia. At present, no more than 5pc is invested in any one country.
M&G is well known for its bond expertise and the manager, Claudia Calich, looks at a wide variety of large-scale trends to determine whether to invest cautiously or more aggressively.
She then filters for individual countries and, if she thinks a nation isn’t going to “blow up”, will invest there.
Yield: 6.1pc | OCF: 0.8pc | Cheapest share class: I
Schroder Income Maximiser*
Regular income funds struggle to sustain yields of 4.5pc or more. For those who are willing to give up future capital growth in return for income now, an “enhanced income” fund is an option.
This fund, which is 80pc invested in British stocks, is a popular choice among professional fund pickers.
The portfolio of stocks is run by a group of managers from Schroder’s highly regarded “value” team.
The 7pc yield – which is not guaranteed every year – is generated through a combination of dividends and selling future growth using complex “derivative” contracts.
Yield: 7pc | OCF: 0.8pc | Cheapest share class: L
SPDR S&P Global Dividend Aristocrats Ucits ETF
So-called “smart beta” funds are passive investments that pick companies according to criteria other than their size, as a straightforward tracker fund would do.
These criteria could be features of their financial performance, such as earnings growth, or their valuation.
It could be as a simple as weighting all companies in an index equally, as opposed to doing so by value.
Most such funds have records too short for investors to be sure they will perform in all conditions, but some of the early results are persuasive.
The SPDR S&P Global Dividend Aristocrats ETF tracks those companies from a giant global index that have grown dividends for at least 10 years, with resources to support payments in the future.
The end result is a relatively low-cost way to get global exposure to mature, defensive companies with a solid yield.
Yield: 3.8pc | OCF: 0.45pc | Cheapest share class: N/A | View latest performance data
*The fund is not included in the Telegraph 25 long list.
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