Today, income investors have a lot of choice when it comes to finding high-quality income funds.
There are over 100 equity income funds out there that allow investors to build a diversified income portfolio at the click of a button.
In some cases, these funds even offer yields above the market average. That’s 4.3% for the FTSE 100 and around 3% for the FTSE All-Share.
BMY Mellon Equity Income Booster Fund
The BMY Mellon Equity Income Booster Fund offers one of the highest dividend yields of all the funds on the market today. It pays investors a monthly dividend yield, which totals 7.3% per annum at the time of writing.
The £107m fund can offer this market-beating level of income as it invests in some of the UK’s top income stocks. BMY Mellon’s investment managers also use derivatives to boost returns and generate additional income.
So far, the strategy has been highly lucrative for investors. Since inception, it has produced a total return — including dividends and capital growth — of 6.8% per annum.
Due to the unique strategy used by the fund, it is slightly expensive. It charges 1.7% per annum in fees. However, investors can save nearly 50% buying through some fund supermarkets. That substantially increases the attractiveness of the fund.
As such, if you are looking for a high-yield champion, BMY Mellon could be worth your research time.
Man GLG UK Income
If you are interested in income and growth, the Man GLG UK Income Fund could be a better buy.
This high-yield fund currently supports a dividend yield of 5.2%. It pays its dividends to shareholders monthly and invests in a basket of UK-based stocks.
It does not use derivatives to boost the income level, and that means it charges a slightly lower annual management fee.
Man GLG’s managers are on the lookout for companies that have the potential to offer investors a rising dividend income and capital growth at the same time.
So far, they’ve achieved this aim. The fund has returned 10.4% per annum over the past decade on a total return basis.
These returns have left Man GLG’s peers trailing. Its peer group returns have averaged just 1.5% per annum over the past decade.
The combination of income and capital growth this one offers makes it the perfect investment for a Stocks and Shares ISA and the tax benefits these products provide.
Santander Enhanced Income Portfolio
Another fund targeting both income and capital growth is the Santander Enhanced Income Portfolio.
Its managers say that this product “strikes the balance between an enhanced level of income, without sacrificing the potential for capital growth.“
Its returns certainly live up to this promise. The investment fund currently supports a dividend yield of 5%. Investors receive their income every month.
Meanwhile, the portfolio is stuffed full of income and growth stocks. Some of the holdings offer little in the way of income, but they’ve provided substantial capital gains for the portfolio.
This combination has helped the Santander offering achieve a three-year total annualised return of 7.5%. This is also the cheapest of the three funds profiled here.
Santander Enhanced Income charges an annual management fee of just 0.58%. That appears appropriate considering the fund’s long-term total returns and monthly income stream.
