Six funds generating an income for investors
We are all living longer. Improvements in healthcare and working conditions mean many of us can expect to live well into our 80s – and beyond. But how much income is needed for a decent standard of living and which investment funds can help us achieve that goal?
Here we look at how to estimate your future financial requirements and highlight some of the best income-generating portfolios.
When will you retire?
As well as living longer, we’re also working longer. The State Pension Age is 66-years-old for both men and women, but the Government has announced it’s going up to 67-years-old by 2028*. Further increases are expected. In fact, the UK may have to increase it to 71 by 2050, according to a recent report from the International Longevity Centre**. The rules around private pensions are also changing. From 6 April 2028, the normal minimum pension age – when you can start taking income – is rising from 55 to 57-years-old for many people***.
Income in retirement
Regardless of the changes, most people will need to fund many years of retirement. So, how much are you likely to need and where can this be generated?
A single person will need about £14,000-a-year to achieve a minimum living standard, according to the Pensions and Lifetime Savings Association. For a couple this figure’s around £22,400. A moderate standard will cost £31,300 (£43,100 for a couple), while a comfortable life will require an annual income of £43,100 (£59,000 for a couple)^.
Sources of income
The good news is there are plenty of income sources, including equities, fixed income, property and other asset classes. Equities – meaning the shares of companies – can provide an income in the shape of dividends, which are paid to investors out of profits generated. Fixed income products, meanwhile, pay a set amount of interest over pre-determined periods, as well as your original investment returned on a specified future date.
Funds to consider
You can, of course, put together your own portfolios through buying individual dividend paying stocks and a selection of bonds. However, this is quite a risky approach. A much better way of getting access to these areas is via pooled investment funds and the good news is there are plenty available.
Here we highlight six portfolios embracing a variety of asset classes that could be worth considering as income sources in retirement.
BlackRock Corporate Bond
While this fund predominantly invests in investment grade corporate bonds, we like its flexible approach and track record of exploiting fixed income market inefficiencies. It also has the ability to find ideas within areas such as asset-backed securities, high yield and unrated bonds, as well as those denominated in other currencies and hedged back to sterling.
The fund’s manager, Ben Edwards, combines macroeconomic views on the wider economy with fundamental research on individual companies and their bonds. He also benefits from access to BlackRock’s huge resource of fixed income specialists in trying to uncover the best ideas.
M&G Strategic Corporate Bond
This fund mainly invests in investment grade bonds – but up to 20% can be in high yield bonds, government debt, convertibles, and preference stocks. We like this fund’s flexibility and ability to move away from the benchmark at times when the opportunity to add extra value arises.
While this does make it higher conviction and potentially riskier, it has a very experienced manager at the helm in Richard Woolnough. His view on the economic outlook determines the asset classes and sectors in which the fund will focus its attention. The in-house credit team provides detailed analysis.
CT UK Equity Income
Managed by the highly experienced Jeremy Smith, this fund looks for unloved “hidden gems” with the ability to sustainably grow their dividends. The fund has a patient high-conviction approach, typically holding fewer than 60 companies^^, and has proven to be extremely consistent over many years.
This is a contrarian fund that identifies undervalued stocks by looking at the general macroeconomic environment but also using stock selection. The style bias of this fund means it is likely to perform better in value markets.
JPM Global Equity Income
We see this as a core equity income fund that can invest globally in large and mega cap stocks. Its mandate even enables it to embrace emerging markets. The three-strong management team of Helge Skibeli, Sam Witherow and Michael Rossi lean on JPM’s extensive analyst teams when selecting stocks. The result is a 40 to 90 stock portfolio that provides a balance of current income and future dividend growth by investing across the yield spectrum. Microsoft, Taiwan Semiconductor and Samsung Electronics are currently among the largest stock positions^^.
Ninety One Global Income Opportunities
This fund targets an income of 4% for investors and invests conservatively around the world in a diverse range of equities and bonds. Investors can be reassured by the fact its co-managers, Jason Borbora-Sheen and John Stopford, have a combined 40 years of industry experience.
Their three-stage process involves idea generation, building a well-diversified and actively managed fund, and managing risk. This will result in an overall portfolio that will typically consist of 80 equity holdings and between 80 and 100 fixed income issuers.
BNY Mellon Multi-Asset Income
Our final suggestion is a fund that aims to achieve a stable income, along with the potential for capital growth over the long term, by investing in equities bonds and alternatives. This portfolio, which is part of a broad multi-asset range, can invest in any geographic or economic sector across the world.
This unconstrained and flexible approach has managed to provide investors with a stable and growing income, as well as access to key global themes. The list includes renewable energy, economic infrastructure, asset financing, government bonds, emerging market bonds and various equity holdings.
*Source: Department for Work and Pensions, 30 March 2023
**Source: International Longevity Centre UK, 5 February 2024
***Source: Standard Life, 5 June 2023
^Source: Retirement Living Standards
^^Source: fund factsheet, 31 December 2023
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and fund managers and do not constitute financial advice.
