Archive for the ‘Investment funds’ Category

Investor’s Guide to Income

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Last updated: 15/02/2016

The need for income remains firmly at the top of the investor’s New Year priority list and as the hunt for high yield opportunities continues, being able to understand and compare the numerous options available is more important than ever. So what better place to start 2016 than with our Investor’s Guide to Income where we give you an overview of the range of income options on offer, as well as compare some of our most popular investment ideas from last year and their main differences.

Why is income a top priority?

There’s no denying that generating an income is one the most common demands placed on our capital, even more so as low interest rates still appear to be with us for some time to come and there remains a significant question mark around what might happen to inflation in the coming years. Whilst annuity rates also remain comparatively low and many salaries are only just starting to keep up with the real cost of living, it is understandable why income remains a top priority, regardless of our stage in life.

Trends from the last couple of years show that there have been record numbers of ISA savers using the investment element of the New ISA allowance, revealing that many are looking to take on more risk than before in an attempt to try and produce the levels of income previously enjoyed. So as 2016 gets underway, this brief investor’s guide to income is the start of the income and ISA themes that we will develop throughout the year as the demand for innovative income investments continues and ISA savings take on an increasingly important role. So what are the main areas for consideration?

Open ended or fixed term?

Open ended

Most investors who have had income investments in the past are likely to have at least considered an open ended investment fund. Here, your investment is pooled together with those from other investors which combined make up a single fund. Your investment buys units in that fund at the prevailing price, which is normally priced daily based on the value of the underlying holdings. The majority of income funds are actively managed, which means that an investment manager, often supported by a team of analysts, researches companies and then invests accordingly, moving in and out of companies in line with fund’s investment objective and depending on their view of where income, and perhaps growth, can be achieved.

Since there is an ongoing management of the fund, there is normally an annual fund management charge along with additional charges for the platform and/or service within which you hold the fund. Open ended funds, as the name suggests, are designed to carry on regardless of whether new investors buy in, or existing investors sell their investment. The investor is therefore in control of when they buy the units in the fund, as well as when they decide to sell them, the price of which can go up and down on a daily basis depending on where the fund is invested and the performance of those assets.

Fixed term

Fixed term investments on the other hand last for a defined term, known at outset, and is normally around five or six years. Although most of these investment plans offer a daily secondary market price, which can be higher or lower than the price at the start the plan (and in this respect not dissimilar to investment funds), these investments are designed to be held for the full term. The fixed term may appeal to those who wish to plan around this and it also removes what can often be the difficult decision of when to sell or switch your existing investments.

Fixed income versus variable income

Investment funds

Income funds can be broadly split between two types, both of which offer variable income which means it can go down as well as up. Firstly, those funds which invest in companies (shares) and use dividends to provide income, for example funds in the UK Equity Income sector. One such fund and one which now has over 12 months trading history behind it, is the first fund offered by Neil Woodford’s new venture, the CF Woodford Equity Income fund, which targets a 4% income yield each year and pays quarterly.

The second type is those funds which use corporate bonds and/or gilts to provide income, such as Royal London’s Corporate Bond fund. This fund is Silver rated by Morningstar OBSR and has a current distribution yield* of 4.42% with quarterly income payments. Since the market value of both types of funds can fall as well as rise over time, so can the value of your units and since the fund manager will buy and sell different company shares or bonds depending on their view of the market, so too will your income vary.

Investment plans

Investment plans on the other hand can offer either variable income or fixed income. They differ from investment funds since they offer a defined return for a defined level of risk, known at the outset and prior to investing. One popular example of a variable income is the FTSE Contingent Income Plan from Focus (Credit Suisse acting as the counterparty), which offers up to 7.0% each year with a 1.75% income payment made at the end of each quarter provided the FTSE 100 Index closes at or above 75% of its value at the start of the plan (i.e. it can fall up to 25% and you would still receive an income payment). If it closes below this level, no income will be paid for that quarter. Capital is at risk if the FTSE falls by more than 40%.

With fixed income investment plans you know exactly what you will be paid, when and for how long, which has its obvious appeal for those looking to plan for the future and are seeking a regular and defined income. The Enhanced Income Plan from Investec has been our most popular income investment over the last few years with the current issue paying 5.28% annual income, regardless of what happens to the stock market. Since most yields on income investments are variable, this type of plan offers a unique and potentially attractive income alternative in the current climate. Capital is at risk if the FTSE falls by more than 50%.

Monthly or quarterly payments?

Another important feature of income investments is how often income is paid out. The most common payment frequencies are bi-annually, quarterly and monthly, with the more regular frequencies usually being the most popular with investors. These investments therefore provide a regular opportunity to receive an income, although different investment funds have different payment frequencies with many bond funds offering monthly income, whilst equity funds normally pay quarterly and, more rarely, twice yearly.

Investment plans normally offer monthly or quarterly payments. The Enhanced Income Plan mentioned above offers a fixed payment each month, currently at 0.44% of your initial investment, and since monthly income can be the most useful in terms of budgeting and when looking to supplement existing income, this payment frequency is often the most sought after. The FTSE Contingent Income Plan offers a potential income each quarter.

Conditional capital protection versus diversification

Conditional capital protection

Investment plans include what is known as conditional capital protection. This means that your initial capital is returned at the end of the investment term, as long as the underlying investment (for example, the FTSE 100 Index) has not fallen below a fixed percentage of its value at the start of the plan, normally 50%. This therefore offers some capital protection against a falling stock market. Your capital will be at risk if the underlying investment does fall below the defined level, in which case your initial capital will be reduced by 1% for each 1% fall, so there is the chance you could lose some or all of your initial investment.

Diversification

Your capital in an investment fund is at risk based on the value of the underlying holdings, which can go up or down on a daily basis. As such, there is no capital protection offered, nor is there the conditional capital protection associated with fixed term investment plans. However, since most funds invest in multiple holdings (equity funds between 30 and 90, bond funds often over 100), the impact of one of the underlying holdings falling significantly in value is reduced – this is commonly known as diversification. Investment funds also have the opportunity for capital growth should the value of the underlying investment rise in value, a feature which is not usually available within income investment plans.

Counterparty risk

Unlike a fund, fixed term investment plans use your investment to purchase securities issued by the counterparty (usually a retail or private bank), which means that their ability to meet their financial obligations becomes an important investment consideration. This is known as counterparty or credit risk and means that in the event of the bank’s insolvency, you could lose some or all of your initial capital as well as any rights to future income, and these investments are not covered by the Financial Services Compensation Scheme for default alone. There are various global credit rating agencies which assist in determining the potential credit worthiness of these institutions.

Risk versus reward

When considering income investment options it is important to understand the principle of risk versus reward, which means that the opportunity to receive a higher income than might be available from cash deposits inevitably requires the investor to put their capital at risk. A good benchmark for assessing your investment is to compare what you could get from a fixed rate deposit over a similar timeframe (for example, five years) and then consider whether you are comfortable with the additional risk you are taking in order to receive either a high fixed return or the potential for a higher variable income.

Leading five year fixed rates are currently offering around 3% and so by accepting risk to your capital, the potential income over and above this (along with the potential for capital growth where relevant), allows the income investor to decide whether they are comfortable with putting their capital at risk in return for the yields on offer. Any conditional capital protection should also be a consideration, as should the potential to protect your income from the effects of inflation over time.

Use your New ISA allowance for tax free income

By contrast to the interest rate environment, the prominence of ISAs has moved forward considerably since the significant increase to the annual ISA allowance was introduced in July 2014. The current allowance is now £15,240 and since the distinction between Cash ISAs and Investment ISAs (or Stocks & Shares ISAs) has been removed, you can now place up to the full allowance in one or a mixture of both, and you can also transfer from one to the other without restriction. It is therefore up to you to decide how much of your ISA portfolio is put into cash and investments.

One of the main benefits of an ISA is that income is received tax free and with no further tax to pay. This is particularly attractive for income that would normally be subject to income tax (for example, interest from deposit based savings, most investment plans and income from bond funds) where the impact of tax can be significant, especially over time. With the lowest marginal rate of income tax currently standing at 20%, this is a sizeable reduction to any stated returns on offer. Remember that tax treatment of ISAs depends on your individual circumstances and may be subject to change in the future.

Fair Investment conclusion

Commenting on the range of income investments available, head of savings and investments at Fair Investment Company, Oliver Roylance-Smith, said: “Investment funds have traditionally been the more popular choice for income investors with varying investment objectives and a wide range of underlying investment styles and sectors to choose from. These also bring with them diversification benefits of spreading your investment across a number of different companies or bonds, as well as the potential for capital growth in addition to a regular income stream.”

He continued: “As an alternative to open ended investment funds, the defined return and defined risk offered by fixed term investments offer investors a different approach to achieving income. Their conditional capital protection also means that your initial investment has some protection against a falling market. Combined with either a fixed or variable income and these plans can offer a competitive balance of risk versus reward.

In conclusion, whichever route your choose, the market for income investments can be full of attractive headline yields but it is important to fully understand how each investment works and the risks it entails. Whether this is inflation risk, risk of capital loss or fluctuating yields, it should always be remembered that it is the income and capital loss/rise combined that produce your overall return.”

Investment plans

We have a number of fixed term investment plans which offer either a fixed income or a variable income based on the performance of the underlying investment.

Click here to compare our current selection of income investment plans »

Fair Investment Fund Supermarket

With over 3,300 clean (non-commission) share class funds and access to over 200 fund groups, the Fair Investment Fund Supermarket offers a vast choice of income funds, many of which have 0% initial charge and low annual management charges, including low cost tracker funs, bond funds, UK equity income, global income and managed funds.

Click here to compare our current selection of income investment funds »

 

Click here for more information about the Investec Enhanced Income Plan »

Click here for more information about the Focus FTSE Contingent Income Plan »

Click here to compare UK Equity Income investment funds »

Click here to compare Bond Income investment funds »

 

* The distribution yield reflects the amounts that may be expected to be distributed over the next 12 months as a percentage of the Fund’s net asset value per share as at the date shown. It is based on a snapshot of the portfolio on that day. It does not include any initial charge and investors may be subject to tax on distributions.

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. Fair Investment Company does not offer advice and any investment transacted through us in on a non-advised basis. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice. Tax treatment of ISAs depends on your individual circumstances and legislation which may be subject to change in the future.

The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. Different types of investment carry different levels of risk and may not be suitable for all investors. Past performance should not be taken as a guide to the future and there is no guarantee that these investments will make profits; losses may be made.

Structured investment plans are not capital protected and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance.

Invest like the best – Neil Woodford’s investment winners

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Having spent over 25 years at Invesco Perpetual looking after more than £30 billion of client assets, Neil Woodford is undoubtedly one of the UK’s best known fund managers. So when the announcement came around 2 years ago that he was intending to go it alone, it is perhaps understandable why this was one of the most eagerly awaited launches in UK fund management history. Now with more than 12 months trading history behind it, we take a look at how the fund has performed along with which shares have been the real star performers.

Investment strategy

When Mr Woodford was talking about the impending fund launch he confirmed that the fund would have the same investment approach employed by him whilst in his former role at Invesco Perpetual, targeting capital growth and a level of income by focusing on valuations and seeking out companies that can return sustainable dividend growth, as well as those which will be the dividend payers of the future. His new fund would also include small-cap stocks and unquoted companies.

12 months on…

The CF Woodford Equity Income Fund launched on 2nd June 2014, and although his performance whilst at Invesco Perpetual had made him one of the most successful fund managers in recent times, as the investment maxim goes, past performance is not a guide to future performance. Whether he could mirror his previous achievements was of course at the forefront of every investor’s mind. So how has the fund performed?

Top performance

Well, more than 12 months on, the widely followed fund manager has managed to accrue a portfolio worth close to £7 billion and with the performance to date that justifies investor’s confidence. In its first year, for the 12 months to the end of 30th June 2015, the fund returned 16.9%, compared with a 2.6% rise in the FTSE All Share Index, the fund’s investment benchmark. Not bad indeed.

Transparent investing

As with all investment funds the full performance data is there for all to see and updated monthly, but what is extremely unusual for a fund manager is that not only has Mr Woodford made public all holdings in his fund (most funds groups only publish the largest 10) but he has also gone further and published details of the contribution of every single share held, thereby allowing investors to see how much each share has made, or lost, during the first full year of his new fund.

The winners

The star of the show in the year to 30th June 2015 was Allied Minds, a FTSE 250 company that provides finance and other services to early-stage technology companies originating from the United Sates. The company provided 3.2% of the fund’s 16.9% growth (equivalent to 19% of the total growth), driven by a 187% rise in its share price over the year.

The biggest growth of any of the companies invested in by Mr Woodford came from 4D Pharma, a pharmaceutical company focusing on the development and bringing to market of a number of projects targeting new therapeutic products and services. Woodford has long been a fan of the pharmaceutical sector and this is one that certainly paid off. Its shares rose by 515% in the year, contributing 1.58% of the fund’s overall performance.

Other top performers within the fund include Prothena, a biotechnology company based in the United States and Redde, a specialist insurance and support services group based in Bath, returning 154% and 144% respectively.

The losers

The biggest drag on performance came from Drax, the owner and operator of the large coal-fired power station in North Yorkshire. The holding accounted for 1.6% of the fund but reduced overall fund performance by 0.98% after its shares fell by 44% over the period.

The biggest share price fall came from Rightster, a company aiming to simplify the distribution of live and on-demand video by the use of a cloud-based software platform. Unfortunately shares in the business fell by 74% over the period, reducing the fund’s overall performance down by 0.45%.

New investments and exits

Further study of the Woodford Equity Income fund reveals that the portfolio has grown from 61 stocks at launch to 99 currently. There have been 52 additions to the fund in that time, whilst 14 companies have been given the axe including the only bank to feature at the launch of the fund, HSBC. Royal Mail was the biggest addition over the year and accounts for 2.3% of the fund while interestingly, twenty of the new additions are companies in the Health Care sector.

Fund size and allocation

Mr Woodford attracted £1.6bn of investors’ money when he launched the Woodford Equity Income fund, some of which came directly from funds he had previously managed at Invesco Perpetual. His now not-so-new fund has swollen to £6.94n as at the end of August 2015 with 86% allocated to businesses based in the UK and the three biggest sectors of Health Care, Financials and Consumer Goods contributing to 70% of the fund’s holdings.

Weighting

The benchmark for the fund is the FTSE All Share Index and by comparison, the fund is significantly overweight in Health Care, 32.02% versus a sector benchmark of 8.57%, and Industrials, 15.23% versus 10.38%, the two combined totalling 47.25% compared to 18.95% for the benchmark. By contrast, the fund is significantly underweight in Financials, Consumer Services, Basic Materials and Oil & Gas, totalling 25.6% of the holdings versus a benchmark weighting of 55.4%.

Investment style

The outperformance of the fund during its first year certainly suggests a proven and distinctive approach. The fund aims to only invest when there is a compelling long-term opportunity – and not to invest in shares just to make the fund look more like the index. As Mr Woodford’s style is often to go against consensus in order to deliver long-term returns, it will at times behave very differently to the overall market, a point which should ultimately be born in mind before investing.

Investment objective

The investment objective of the fund is to provide a reasonable level of income together with capital growth, which will be achieved by investing primarily in UK Listed companies. The fund is very much focused on delivering attractive long-term returns for investors through investment in quality companies that can deliver sustainable dividend growth. Income is paid quarterly.

Potential investors

Potential investors should therefore be looking to have their capital managed rather than simply having exposure to the market as a whole via an index fund or tracker. The team at Woodford Investment Management believes that “active fund management adds value for investors and that this is never more true than in challenging economic conditions”.

This fund is an actively managed fund which has outperformed its benchmark in its first year by some margin whilst Neil Woodford’s previous track record is testimony to his ability to make the right decisions when conditions are tricky – but ultimately past performance cannot be used as a guide to what will happen in the future and so you need to satisfy yourself first whether he can continue in the same vein over the longer term.

Invest via the Fair Investment Fund Supermarket

The CF Woodford Equity Income Fund is available for investment through the Fair Investment Fund Supermarket at 0% initial charge. The fund is available for this year’s ISA allowance (maximum of £15,240 for the 2015/16 tax year) and we also accept Cash ISA and Stocks & Shares ISA transfers. Investors who have already used their ISA allowance can invest via our investment account. If you’re ready to invest, then you apply online here.

Find out more and how to invest in Neil Woodord’s Equity Income Fund »

Research and invest in shares now via Barclays Stockbrokers Marketmaster »

 

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice. Tax treatment depends on your individual circumstances and may be subject to change in the future.

The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. Different types of investment carry different levels of risk and may not be suitable for all investors. Past performance should not be taken as a guide to the future and there is no guarantee that these investments will make profits; losses may be made.

Top 5 Bond Funds Paying Over 5% Income

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Regardless of what is happening to the UK economy and to the UK stock market, one of the most frequent demands put on our capital is the need to provide us with an income.

From capital protected bank deposits paying a fixed rate, capital at risk investments offering variable income, and everything in between, the options are vast. With this in mind, we bring you five bond funds paying over 5% income, all from our Select Range of investment funds and all available at 0% initial charge via the Fair Investment Fund Supermarket.

 

Fund criteria

This month’s bond fund selections are based on the following criteria:

Paying at least 5% income
All of the funds have a distribution yield* of at least 5%. The lowest income is 5.30% whilst the top paying fund is currently yielding 6.64% (as at 31/03/2015).

0% initial charge
All of the funds have a 0% initial charge via the Fair Investment Fund Supermarket.

Payment frequency of at least quarterly
On the basis that receiving income at least quarterly continues to be an important consideration for investors seeking income, three of the funds pay income monthly whilst the other two pay quarterly.

Taken from our Select Range of funds
Our Select Range of funds is based on investment analysis carried out by leading independent research and ratings company Morningstar OBSR (click here to read more about how our Select Range of funds selected).

Minimum Bronze rating
The top three ratings given by Morningstar OBSR, Gold, Silver and Bronze, indicate that a fund is highly regarded by their team of analysts. The very highest ratings are given to funds which, in the analysts’ opinion, have the strongest ability to outperform their benchmark and peers over time, within the context of the risks taken – the stronger the conviction, the higher the rating. Three of the funds have a Bronze analyst rating and the other two are Silver rated.

The funds are ranked based on their Morningstar OBSR rating, starting with the highest:
Read more

Monthly income investment selections

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Whether investing inside or outside of an ISA, the hunt for income remains a top priority for many investors, as evidenced by the number of our existing customers and those new to Fair Investment looking for income solutions. With the frequency of payments one of the most important features for many income seekers, we have put together a selection of our most popular monthly income investments. We also give you our in-house view of each from Oliver Roylance-Smith, our Head of Savings and Investments. For those who are yet to use their ISA allowance, all of the investments featured are also available within an ISA so you could benefit from tax free income.

Income a top priority

Whether you are an experienced investor or new to saving for the future, those needing income from their capital covers a wide range of scenarios, some of which may apply to you right now:

  • I am working and need to supplement my income
  • I am retired and need an income from my savings
  • I have an instant access Cash ISA but the level of interest has dropped significantly
  • I have an Investment ISA that is not yielding what it used to
  • I have a maturing fixed rate Cash ISA and the equivalent rate for the same term again is significantly lower
  • I am struggling to find a fixed and regular income from my capital which is competitive

Both savers and investors

With cash continuing to offer record low rates, even if you tie yourself in for the longer term, many savers are being driven to join income investors in the hunt for higher yields. What is clear is that regardless of the prevailing economic conditions, income remains a top priority for both savers and investors.

Although many income investors have historically looked to UK Equity Income funds to provide an
income, with typical yields on these funds currently under 4%, this may not be providing the level of income required and investors may well be questioning whether capital growth will do enough to boost their overall returns.

Monthly income

When reviewing the options available, those seeking income from their capital often take into consideration the level of income on offer, the frequency of payments as well as the overall risk versus reward offered by the investment. But with equity funds only offering quarterly income at best and many only paying twice each year, monthly income investments have an obvious appeal for those after a regular income.

Our selections

Our selection of income investments is based on the main features investors usually look for when it comes to finding the best income opportunities available. From high levels of fixed income paid regardless of the performance of the stock market, to high yielding bond funds which diversify your investment across a large number of holdings, all of them have one thing in common – monthly income.

5.40% p.a. fixed income, Investec Enhanced Income Plan

The Enhanced Income Plan from Investec continues to be one of our best sellers for those investing both inside and outside of an ISA. One of the main appeals for income seekers is that the income is fixed and therefore paid to you regardless of the performance of the FTSE – you therefore know exactly how much you will receive, when and for how long. The annual income is currently 5.40% (paid as 0.45% each month) which is high when compared to typical yields currently being paid by UK equity income funds. Capital is at risk if the FTSE drops by more than 50% during the plan and fails to recover by the end of the term, in which case your initial capital will be reduced by 1% for each 1% fall, so you could some or all of your initial investment.

Fair Investment view: “5.40% tax free income (if held in an ISA) is the equivalent of 6.75% taxable income for a basic rate tax payer and 9.00% for a higher rate tax payer. This high level of fixed income and the monthly payment frequency are popular features and with ongoing uncertainty around future interest rates and dividend yields, this plan offers a competitive balance of risk versus reward that could be considered by both savers and investors.”
Click here for more information »

7.20% p.a. fixed income, Meteor FTSE 5 Monthly Income Plan

The second income plan in our selection also offers a fixed income, paid to you regardless of the performance of the stock market. The FTSE 5 Monthly Income Plan from Meteor offers 7.20% annual income, paid as 0.6% each month. This level of income is significantly higher than Investec’s plan, one of the main reasons being that the return of your initial capital is dependent on the performance of five FTSE 100 shares rather the Index as a whole. Should the value of the lowest performing share be less than 50% of its value at the start of the plan, your initial capital will be reduced by 1% for each 1% fall, so you could lose some or all of your initial investment.

Fair Investment view: “The fixed income on offer equates to a total return of 43.2% over the term of the investment and if you invest within an ISA, the 7.20% fixed income is equivalent to 9.00% p.a. for basic rate tax payers and 12.0% p.a. for higher rate tax payers. This investment might well appeal to income investors looking for a high level of fixed and regular income however, the fact that the return of your initial capital is based on the performance of five shares rather than the Index as a whole should be a key consideration.”
Click here for more information »

6.40% yield, Threadneedle High Yield Bond Fund

This fund was launched in 1999 and is now almost £800 million in size. At 6.40%, the fund currently has one of the highest distribution yields* in the high yield sector and the monthly income frequency seems to be the favoured choice for our income investors, especially those looking to supplement income. The fund is managed by Barrie Whitman (since launch) and David Backhouse and has the simple aim of providing income. The fund invests at least two thirds of its assets in high income paying bonds issued by companies worldwide with the top three sector holdings covering media, services and telecommunications.

Fair Investment view: “The total number of bond issuers in the fund is currently 162 and the fund has produced a cumulative return of 7.4%, 23.3% and 56.9% over the last one, three and five years respectively. The high yield is achieved by investing predominantly in sub-investment grade bonds which are considered riskier than higher rated bonds but typically pay a higher income and so investors will experience some volatility. The fund is well diversified and is currently overweight in both banking and the European high yield market. The fund is Bronze rated by Morningstar OBSR.”
Click here to find out more and to apply »

4.60% yield, Invesco Perpetual Monthly Income Plus fund

Invesco Perpetual’s Monthly Income Plus fund has been popular with income investors for many years. Launched in 1999, the current management is split between Paul Causer, Paul Read and Ciaran Mallon who together have secured a Morningstar OBSR Silver rating. Now almost £4 billion in size, the aim of the fund is to achieve a high level of income together with capital growth over the long term by investing primarily in corporate and government high yielding debt securities globally as well as equities (up to maximum of 20%).

Fair Investment view: “Of the 382 current total number of holdings, just under 40% are with investment grade institutions with 16.75% of the fund invested in equities. The fund has produced 7.30%, 35.42% and 64.54% over the last one, three and five years respectively, outperforming its sector by some margin. It has a current distribution yield of 4.60% which is relatively low compared to the funds historical performance however the fund continues to be very popular with income seekers.”
Click here to find out more and to apply »

Investment funds

The two funds featured are open-ended collective investment funds which offer investors the ability to pool their money with others in order to invest in a large number of holdings, thereby diversifying their risk and accessing a far greater spread of holdings than would be available if investing directly. This offers savers another way of gaining access to the potential for higher income than available from cash.

Investment plans

The two fixed income investments are fixed term investment plans. These are an alternative to open ended investment funds, offering a defined return for a defined level of risk, thereby giving investors a further option to achieving income for their capital.

Investment plans versus investment funds

It is important to remember that income yields from investment funds are not guaranteed and are therefore subject to fluctuations. In addition, the treatment of your capital is different –fixed term investment plans contain what is known as conditional capital protection which means your initial capital is returned at the end of the plan term unless the underlying investment (either the FTSE 100 Index or five shares listed on the Index) has fallen by 50% or more. With investment funds your capital is fully at risk on a daily basis albeit your investment is spread across a large number of holdings, thereby diversifying the impact of one bond issuer failing.

Understanding how and when income is paid, as well as the treatment of your initial capital over time, are important considerations. The income yield as well as any rise or fall in the value of your original capital should always be considered together since both have an effect on your overall return. For example a 7% income yield might be compelling in its own right but not so if it coincides with a 7% reduction in the value of your capital. However, the total return can also work in your favour if capital growth is positive.


Click here for more information about the Investec Enhanced Income Plan »

Click here for more information about the Meteor FSTE 5 Monthly Income Plan »

Click here to compare monthly income funds »

 

*  the distribution yield reflects the amounts that may be expected to be distributed over the next twelve months as a percentage of the Fund’s net asset value per share as at the date shown. It is based on a snapshot of the portfolio on that day. It does not include any initial charge and investors may be subject to tax on distributions.
Past performance is not a guide to future performance.
All fund data correct as at 31/07/2014. 

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

Tax treatment depends on your individual circumstances and is based on current law which may be subject to change in the future. Always remember to check whether any charges apply before transferring an ISA.

The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. Different types of investment carry different levels of risk and may not be suitable for all investors. Past performance should not be taken as a guide to the future and there is no guarantee that these investments will make profits; losses may be made.

The investment plans detailed are structured investment plans which are not capital protected and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index or any shares listed within the Index is not a guide to future returns.

Neil Woodford’s new fund available now – £1 fixed price offer period ends soon…

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Neil Woodford spent 25 years at Invesco Perpetual looking after more than £30bn of assets and is arguably the best known UK fund manager of the last decade, which is why this has been one of the most eagerly anticipated fund launches in UK fund management history. The CF Woodford Equity Income Fund launched on 2nd June 2014 and is now open for investment through the Fair Investment Fund Supermarket at 0% initial charge and. The fund is available for this year’s ISA allowance and we also accept ISA transfers. Investors who have already used their ISA allowance can invest via our investment account. If you’re ready to invest, then request an application pack or apply online.

Neil Woodford – one of Britain’s finest

Neil Woodford is one of the UK’s best known fund managers and his performance whilst at Invesco Perpetual makes him one of the most successful fund managers of recent times. So when the news that he was leaving Invesco hit the headlines back in October last year, it was understandable why many investors took note.

The CF Woodford Equity Income Fund – available now

Now he is back with the first fund from his new venture, the CF Woodford Equity Income fund, which will have the same investment approach he employed at Invesco Perpetual, targeting capital growth and a level of income. Mr Woodford said “I will run this new fund in the same way that I have always run money, adopting the same philosophy and the same long-term approach. My passion and energy have never been stronger.” The fund is available now for investment via the Fair Investment Fund Supermarket as a new ISA, ISA transfer or non-ISA investment.
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Top 10 Income Ideas for 2014

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Income needs are a top priority for both savers and investors, evidenced by the increasing number of our existing customers and those new to Fair Investment looking for income solutions. With this in mind, we have put together our Top 10 income ideas for 2014. From a fully capital protected bank deposit and a unique fixed income investment, to investment funds and fixed term investment plans offering high yield opportunities, there should be something here that appeals. We also give you our in-house view of each from Oliver Roylance-Smith, our Head of Savings and Investments and for those who are yet to use their ISA allowance, all are available within an ISA so you could benefit from tax free income.

1.   Income best seller – 5.40% fixed income, monthly payments

The Enhanced Income Plan from Investec was our most popular income investment in 2013 and continues to be a best seller. The main appeal is that it offers a fixed income for a fixed term, regardless of the performance of the FTSE 100 Index, so you know exactly how much you will receive, when and for how long. The annual income is currently 5.40% (paid as 0.45% each month) which is high when compared to typical yields currently being paid by equity income funds. Capital is at risk if the FTSE drops by more than 50% during the plan and fails to recover by the end of the term, in which case your initial capital will be reduced by 1% for each 1% fall, so you could lose some or all of your initial investment. There are no annual management charges with this plan.

Fair Investment view: “5.40% tax free income (if held in an ISA) is the equivalent of 6.75% taxable income for a basic rate tax payer and 9.00% for a higher rate tax payer. This high level of fixed income and the monthly payment frequency are popular features and with ongoing uncertainty around future interest rates and dividend yields, this plan offers a competitive balance of risk versus reward that could be considered by both savers and investors”

Click here for more information »

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Take the Income Challenge

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Generating an income is one of the most constant demands placed on our capital, and yet the questions posed by the savings and investment landscape remain as challenging as ever. From the wide range of savings and investment plans to choose from and which features to consider, to the greater freedom available from ISAs, it is more important than ever that all options are considered carefully. But where do you start? We take a quick tour around the current challenges being faced by income seekers as well as highlight some of the more popular savings and investment options being used by our customers.

The here and now

For income seekers, the aftermath of the global financial crisis is still very much upon us as the period of record low interest rates continues and historically low savings rates hamper cash savers to achieve returns anywhere close to those seen in previous years.
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Top 10 Reasons To Use Our Fund Supermarket

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Much has happened recently in the world of investment funds with some major changes taking effect from 6th April in terms of how investors access funds and how they are charged. With this in mind, we thought you might like a reminder of why many investors have already chosen the Fair Investment Fund Supermarket.

Here’s our Top 10 reasons why…

1. Extensive fund choice and our Select Range

Choose from over 2,100 investment funds from over 95 fund management groups including income funds, low cost trackers and managed funds.

2. Select Range of funds

Our Select Range has been created to help you choose by combining value for money with analysis carried out by leading independent research company Morningstar OBSR.

3. Huge savings on initial charges and free switching

Most of the funds available are offered at 0% initial charge saving you up to 5.5% when you invest, equivalent to £653 on a £11,880 ISA. We also offer low and transparent annual charging and no additional charges for switching.
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Pure income – 5 bond funds paying over 5% income

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Regardless of what is happening in the UK economy, one of the most frequent demands put on our capital is to provide us with income. From fully capital protected bank deposits paying a fixed or variable rate of interest, a capital at risk investment paying a variable income and everything in between, the options are vast. With this in mind, we bring you five bond funds paying at least 5% income, all from our Select Range of investment funds and all available at 0% initial charge via the Fair Investment Fund Supermarket.

Fund criteria

In putting together our bond fund selections, we used the following criteria:

Paying at least 5% income

All of the funds have a distribution yield* of at least 5%. The lowest income is 5.25% whilst the top paying fund is currently yielding 6.60%.

0% initial charge

All of the funds have a 0% initial charge. The Fair Investment Fund Supermarket also offers investors access to lower cost share classes not available when investing directly resulting in savings of up to 4.5% on standard initial charges or £450 per £10,000 invested.

Payment frequency of at least quarterly

On the basis that receiving income at least quarterly was an important consideration for investors seeking income, three of the funds pay income quarterly whilst the other two pay monthly.

Taken from our Select Range of funds

Our Select Range of funds is based on investment analysis carried out by leading independent research and ratings company Morningstar OBSR (click here to read more about how our Select Range of funds is selected).

Minimum Bronze rating

The top three ratings given by Morningstar OBSR, Gold, Silver and Bronze, indicate that a fund is highly regarded by their team of analysts. The very highest ratings are given to funds which, in the analysts’ opinion, have the strongest ability to outperform their benchmark and peers over time, within the context of the risks taken – the stronger the conviction, the higher the rating. Two of the funds have a Bronze analyst rating, one Silver and two Gold.
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