If you are looking to invest your money in a Cash ISA, the best interest rate you are likely to get today is less than 1.5%. This pitifully low rate of return does not even match inflation.
With that in mind, I’m going to outline three dividend funds that I reckon would be better long-term homes for your money. What’s more, they all yield more than 4%.
Income and growth
At the top of my list is the Man GLG UK Income fund. Managed by Henry Dixon since 2013, the fund was first launched in 1999 and has established an excellent track record of producing impressive returns for investors.
Including income paid to investors, the Man Income fund has outperformed its benchmark, the IA UK Equity Income index, by around 30% over the past five years. Top holdings include UK dividend stalwarts such as Royal Dutch Shell and GlaxoSmithKline.
At the time of writing, the fund supports a dividend yield of 4.96% and charges around 0.9% per annum in management fees.
Mid-cap income
The next one I want to highlight is the Miton UK Multi Cap Income fund. This is, as its name makes clear, a ‘multi-cap’ income fund, which means it invests in small, medium and large listed businesses.
As small-cap stocks tend to produce more in the way of growth than large-caps, I think this is suitable for investors who want income and capital growth.
As well as Miton’s exposure to small-cap stocks, the firm also has around 5% of assets under management invested in alternative assets and European equities. So there’s a degree of international diversification here as well.
Over the past five years, the fund has outperformed its benchmark by around 10% and currently supports a dividend yield of 4.8%. The dividend is paid four times a year, and the annual management charge is 0.81%. Current holdings include mid-cap success stories such as Diversified Gas & Oil plc and Highland Gold Mining.
Income maximiser
The final income investment I like today is the Schroder Income Maximiser.
This fund aims to deliver a target income of 7% per year by investing in income stocks and using derivatives to generate additional income. The use of derivatives means that this might not be suitable for all income investors, however.
Nevertheless, over the past decade, the team at Schroders has demonstrated that it knows what it is doing when it comes to using these instruments to generate the best returns for investors.
Another downside is that the use of derivatives means costs are higher than a traditional fund that only invests in equities. The annual management charge is 1.5%, nearly double that of the other funds profiled in this article.
Still, if you are looking for a market-beating dividend yield from a fund managed by experienced professionals with decades of experience under their belts, then I highly recommend taking a closer look at the Schroder Income Maximiser.
