A fully flexible way to invest
3 minute read
We explore three income funds to consider for your portfolio.
Who's it for? All investors
The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek professional independent advice.
Please bear in mind that tax and pensions laws can change and that their effects on you will depend on your individual circumstances. We don’t offer personal advice.
The beginning of a new year is a good time to evaluate your investment strategy. Here’s why income investing is worth a look in 2023.
Income investing means selecting investments designed to deliver a steady stream of income. It’s a popular way to chase decent returns – and to potentially beat inflation.
You can select income funds where money is pooled with that of other investors and invested by a fund manager who can choose established, cash-generative companies which have potential to pay out significant dividends – a share in the profits – to shareholders. There are many companies which have historically provided significant dividends and a track record of growing profits and consequently improving those dividend payments over time. There are no guarantees this will continue, of course.
As well as providing income, it is also possible to grow your original capital if the share price of investments in the fund increase in value over the time you are invested, although it may go down as well as up along the way.
While dividends can be taken as income if you need it, they can also be reinvested. This is a valuable long-term investment strategy because reinvested income is the biggest overall contributor to total returns because of compound interest. This is the term for earning ‘interest on interest’ or more specifically, generating income from previous income.
There are many income funds to choose from which aim to provide a steady and growing income along with long-term capital growth.
Here we look at three funds you can invest in which we think could be long-term winners.
This fund mainly invests in UK companies, but can invest overseas when attractive opportunities arise. Its holdings tend to be stable, well-established businesses with the financial strength to pay solid dividends to their shareholders.
The three managers – Adrian Frost (highly experienced investor and a partner of Artemis), Nick Shenton and Andy Marsh – spend their time looking for attractive companies to invest in, rather than trying to predict what will happen to the wider economy. This sound investment philosophy has been applied consistently over time.
The team believe that companies with strong balance sheets, sustainable cash flows and attractive valuations are best placed to grow their dividends over time, while also delivering capital growth for shareholders.
This is a large and successful fund managed by two experienced fund managers – Clive Beagles and James Lowen. We like this fund because of the disciplined and rigorous approach they take identifying the companies they want to invest in.
They invest in the shares of dividend-paying firms, in other words companies that share their profits with their shareholders.
The fund also invests in medium-sized companies and smaller companies, which has benefited performance over the long term, in comparison to funds focused on larger companies.
Janus Henderson has a very strong and established team managing global income since 2006. The fund managers, Andrew Jones and Ben Lofthouse, are supported by one of the largest teams of analysts in the global equity income sector. They can utilise the research and insight from over 50 other fund managers and over 25 analysts covering different geographical regions across the firm. This helps them identify the best investment opportunities in regions all over the world.
These three funds are all part of the Barclays Funds List , where you can also find other income funds as well as those that belong to other strategies such as growth, and sector-specific funds.
When investing in an income fund you’ll be asked if you want an accumulation or income units. The accumulation version reinvests the dividends and the income version pays out dividends.
The easiest way to reinvest income from an income fund is to make sure you buy the accumulation units. It is not efficient to receive the cash and then buy more as you’re then subject to transaction costs. Make sure you select the relevant one for you.
The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.
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