If you are looking for an asset that will take the guesswork out of your investment activities, funds are a possible place to begin. There are many different types of funds out there, but one of the popular types for steady and low-risk growth is income funds.
This guide will discuss some popular income funds UK. We’ll analyse these funds, and review some trading platforms.
10 Popular Income Funds UK List
- JPMorgan Ultra-Short Income ETF (JPST)
- iShares Core High Dividend ETF (HDV)
- Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
- Vanguard Total Bond Market ETF (BND)
- Schwab US Dividend Equity ETF (SCHD)
- Iboxx $ High Yield Corporate Bd Ishares (HYG)
- iShares Asia Pacific Dividend UCITS ETF (IAPD.L)
- Vanguard Growth ETF (VUG)
- iShares Core US Aggregate Bond ETF (AGG)
- Sequoia Economic Infrastructure Income Fund (SEQI.L)
Income Funds UK Reviewed
Whether you are wondering how to invest £500, or how to invest 40k, you must do your due diligence. With so many different providers and various types of assets within each fund, deciding which income fund is for you can seem daunting at first.
1. JPMorgan Ultra-Short Income ETF (JPST)
For example, in 2020, during the height of the lockdown, many investments were tanking. However, the JPMorgan Ultra-Short Income ETF still returned 2.18% across the whole year.
Furthermore, this fund pays dividends each month.
If you are interested in gaining a passive income stream through dividend payments, then the iShares Core High Dividend ETF might be your bet. Featuring 75 of the highest dividend-growth stocks in the US, this fund focuses primarily on current income rather than annual returns.
Although this fund experienced a underperformance in 2020 (down by 6.47%), the external factors caused by the Coronavirus pandemic played a part. In fact, if you look at 2019, the fund returned an impressive 20.35% to investors.
3. Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)
One of the income funds for retirement is the Invesco S&P 500 High Dividend Low Volatility ETF. This fund focuses on investing in low-risk assets, providing investors with a ‘safe return. It also aims to replicate returns provided by the S&P 500 Low Volatility High Dividend Net Total Return Index.
4. Vanguard Total Bond Market ETF (BND)
This fund is one of the monthly income funds 2021 to invest in due to its consistent cash payments arriving from the fund managers shrewd bond investments. The Vanguard Total Bond Market ETF has made an average annual return of 4.21% since its inception in 2007.
Featuring a selection of 1004 treasury bonds, this fund is definitely placed in the low-risk bracket. These bonds are predominantly US-government bonds, with a secondary focus on AAA bonds. Due to the high-quality nature of the investments, the Vanguard Total Bond Market ETF is a suitable fund to invest in as an alternative to a bond ETF.
5. Schwab US Dividend Equity ETF (SCHD)
The Schwab US Dividend Equity ETF aims to track the returns of the Dow Jones U.S. Dividend 100, offering a low-cost and tax-efficient investment.
The assets included within the fund focus on quality and dividend sustainability and only stocks that are strong compared to their peers are included. In terms of annualised returns, the Schwab US Dividend Equity ETF made an incredible 35.81% in 2020. Furthermore, the fund is currently up 5.10% in the year to date.
There are various types of bond available to investors, including government, municipal, corporate, and more. However, high-yield bonds tend to be offered by corporate entities. Although slightly riskier than treasuries, as these bonds have a more significant chance of default, they tend to offer a larger rate of return. These bonds are what the Iboxx $ High Yield Corporate Bd Ishares focuses on.
Over the past year, the fund returned a decent 4.12% and has returned an average of 7.11% annually over the past five years. Furthermore, this fund makes its cash payments to investors every month – meaning it is another of the monthly income funds 2021 to choose from. With a low expense ratio of only 0.49% and over 1300 of the highest-yield bonds included in the fund’s assets.
The iShares Asia Pacific Dividend UCITS ETF aims to invest in the 50 dividend-paying stocks based in Asia-Pacific countries. With 40% of assets being based in Hong Kong, 21.26% in Japan, and 18.97% in Australia, this fund provides investors with significant exposure to the Asia-Pacific market.
Due to the nature of some of these countries and the fact they are categorised as emerging markets, this fund can tend to be more volatile. In 2020, the fund experienced a negative return of -10.16%. However, the year previous, the fund made a positive return of 14.41%, which was higher than the FTSE 100 index.
8. Vanguard Growth ETF (VUG)
As mentioned, income funds tend to be comprised of bonds or dividend-paying stocks. One of the equity income funds that focus primarily on the latter, and does so whilst providing solid performance, is the Vanguard Growth ETF. Featuring a selection of US equities, this fund aims to replicate its benchmark index’s performance, the CRSP US Large Cap Growth Index.
This fund has managed an incredible 45.34% return last year through wise investment from the fund manager in charge, which is far better than many funds that operate within the UK equity income sector. Furthermore, it has returned to investors an average of 21.89% over the past five years alone, making it one of the performing funds on our list. Finally, this fund provides a quarterly dividend payment to investors, meaning it is a firm favourite of both retail and professional traders who desire one of the equity income funds to place their capital in.
Investment-grade bonds are thought by some market analysts to have an extremely low chance of default and therefore receive higher ratings from credit agencies such as Moody’s and Fitch. This low chance of default means that returns can be relatively risk-free but might not be at the level of some other investments.
The iShares Core US Aggregate Bond ETF provides exposure to over 8400 investment-grade bonds, with 37% of them coming in the form of US Treasury bonds. In turn, this has provided investors with a solid and consistent return over the past five years, averaging 4.38% each year.
10. Sequoia Economic Infrastructure Income Fund (SEQI.L)
The last fund we will discuss in this guide is the Sequoia Economic Infrastructure Income Fund. This fund aims to provide investors with consistent current income and long-term capital growth through investments in economic infrastructure debt. This means that, rather than investing in bonds or equities, this fund invests in large infrastructure projects in exchange for a slice of the project’s revenue.
What this means for investors is that the Sequoia Economic Infrastructure Income Fund provides not only an attractive risk-adjusted return but a consistent current income too. Featuring a high yield of 6.05% and payments made each quarter, this fund is one of the income funds for retirement as it provides an avenue to a passive income stream.
What are Income Funds?
Income funds are a specific category of mutual funds, distinguished by the type of assets they invest in. Income funds come in various forms, such as money market funds, bond funds UK, and equity income funds. The investment funds for income will primarily invest in securities that generate a fixed return for investors. These securities usually comprise assets such as bonds or dividend-paying equities.
Due to the nature of the assets included within them, income funds tend to prioritise current income rather than income generated through capital gains. This current income refers to cash paid to investors in the income fund and usually takes the form of dividends and interest payments.
One of the key elements of income funds is the quality of assets that comprise the fund. When the fund manager is deciding which securities to invest in, he/she will usually focus on securities that are ‘safe’ and are backed by a large entity, thereby safeguarding them from negative scenarios such as default.
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These ‘safe’ securities tend to come in the form of bonds – these can be corporate bonds, municipal bonds, and government bonds. Bonds are backed by the entity underlying them; for example, US treasury bonds are supported by the US government’s power. This means that the reliability of the bond is solid, as it is extremely unlikely that the government would ever default.
As mentioned, income funds focus on providing current income to investors through the medium of dividends or interest payments, which provides a better return than other investments such as an ISA. Payment dates can vary, but a large percentage of funds distribute income payments to their investors every quarter. You can then withdraw this cash payment, or reinvest it back into the fund, thereby increasing your investment.
Fundamentals of Income Funds
The funds for income offer diversification for your portfolio. If you are invested primarily in equities, the income funds UK can help spread the risk across another asset, meaning that if your equities experience a downturn, you always have the consistent return of your income fund investment to compensate for some of the losses.
However, to give a fair overview, it is wise to touch on a couple of the drawbacks of income funds. The monthly income funds 2021 tend to focus on safe assets, meaning that returns can be pretty small relative to other investments. A recent report by Sanlam in 2019 noted that the 14 income funds in the UK returned an average yield of 5.6% over the previous five years. Furthermore, the full impact of Brexit is still being analysed, so the performance experienced in recent years may differ from what we see going forward.
Although the income funds for retirement are less risky than other investments, it does not mean that they are risk-free. Furthermore, dividend-paying companies are under no obligation to continue this indefinitely, meaning they can reduce the dividend amount or stop it entirely at any point. This can then impact the amount of income you get from your fund investment.
Income Funds UK Investment Platforms
There are many factors to look at when deciding who to invest in income funds UK with.
One of the popular brokers to invest in income funds with is eToro. With over 20 million users worldwide, eToro has solidified itself in the brokerage scene through a solid product offering and attractive rates for users.
Firstly, eToro allows you to trade all of the ten income funds we discussed earlier. What’s more, when investing in income funds with eToro, you will pay 0% commission! The only fee you’ll have to pay is the small expense ratio charged by each fund’s provider – usually, this ranges anywhere from 0.2% to 0.9%. So, if you made a £1000 investment in an income fund with an expense ratio of 0.2%, you would only have to pay £2 in fees each year.
eToro is regulated by the FCA, which means there are strict measures in place that protect your money. What’s more, personal data is kept under SSL encryption, further securing your information.
eToro offers a wide range of deposit options, including credit card, debit card, bank transfer, e-wallet, and more. Also, there are no deposit fees attached to any of these methods. The minimum trade amount for the income fund ETFs mentioned in this article is $50, which converts to approximately £36.
Finally, if you are looking to add other assets to your portfolio along with income funds, eToro offers a vast selection of securities to trade from. You can buy shares, there are over 2400 across 17 markets; or, if you’d like to add the ETFs to your portfolio, eToro offers 175 to choose from. This ensures there is an investment opportunity for everyone.
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In conclusion, income funds UK allow you to invest passively and earn a low-risk return. Due to the nature of the assets included within these funds, returns aren’t as significant as other types of funds. However, the low-volatility nature, combined with another income stream through dividend payments, means these funds are attractive to many investors.