Nine funds for high income and top total returns

In some cases, having a high yield can come at the cost of overall total returns, but it’s not always the case: certain funds allow investors to have their cake and eat it.

“We would generally consider yields above 5% to be unsustainable, as there’s evidence to suggest they can be prone to dividend cuts,” says Kamal Warraich, head of fund research at Canaccord Genuity Wealth Management. “However, there are some funds that are anomalies, which yield over 5% and have outperformed over the long term, delivering strong total returns.”

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We asked a range of investment experts to name a fund or investment trust that has it all and have collated their responses into picks for bonds, equities and alternatives. All yield figures were sourced in mid-July.

Bonds

Man GLG High Yield Opportunities
Yield: 7.8%

Man GLG High Yield Opportunities is the only high-yield bond fund currently on the Shard Capital’s buy list. Run by the “very experienced” Mike Scott, it has consistently delivered top-quartile returns, says Ernst Knacke, head of research at Shard.

“A primarily bottom-up investment process is highly data-driven, emphasising a focus on issuer-specific risk and culminating in a relatively concentrated, high-conviction portfolio,” he says. “This bottom-up framework is complemented by top-down investment themes, including consumer trends, technology, demographics, regulation and other secular drivers that may affect the investment landscape.”

Knacke expects the fund to continue its winning streak thanks to Scott’s “experience and ability”, wider team resources and “robust and repeatable” investment process”.

Royal London Global Bond Opportunities
Yield: 5.9%

An interactive investor Super 60 fund idea, Royal London Global Bond Opportunities has a short duration bias, which should help to shield investors from the impact of looming interest rate rises.

“The fund employs a very flexible unconstrained approach and can invest across a broad spectrum of global fixed income,” says Dzmitry Lipski, head of funds research at interactive investor. “Investment grade, sub-investment grade and unrated bonds mean that risks are diversified while providing considerable opportunities.”

The fund has around 80% in high-yield and unrated bonds. It has not experienced any defaults since its inception in 2015 but its higher-risk nature leads Lipski to recommend it as an adventurous, satellite holding alongside core government and investment-grade strategies within an overall fixed-income allocation.

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Vontobel TwentyFour Sustainable Short Term Bond
Yield: 4.9%

Vontobel TwentyFour Sustainable Short-Term Bond is a touch off producing a 5% yield but is EQ Investors' pick in the space for its simplicity and well-regarded team. The fund invests globally with a bias towards UK corporate bonds.

“In an environment where interest rates could stay higher for longer, we believe that short-dated bonds have a key role to providing a strong yield of 4.5% to 6%, while minimising credit and interest rates risks,” says investment analyst Arjun Wariabharaj.

Its emphasis on sustainability is another big draw for the wealth manager. “The team place a strong emphasis on sustainability, actively seeking investments in companies that demonstrate robust Environmental, Social and Governance (ESG) practices, promoting positive impact alongside financial performance,” adds Wariabharaj.

Equities

Schroder Income Maximiser
Yield: 7.1%

Warraich’s favourite equity income-producing fund is Schroder Income Maximiser, which offers a high income without exposure to shares that might be prone to dividend cuts.

“That’s because the strategy seeks to combine a dividend yield from an underlying portfolio of equities with option premiums,” he says.

The fund receives payments for writing so-called covered call options on underlying stocks, which Warraich describes as a “tried and tested method of increasing yield without taking on too much risk, if done within a controlled risk framework”.

He adds: “Total returns for the fund have been respectable over time relative to the index and peer group. We continue to have confidence in the team’s abilities and approach going forward.”

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abrdn Asian Income
Yield: 5.4%

abrdn Asian Income Fund Ord (LSE:AAIF) offers a yield approaching 5.4%, one of the highest among both Asian and emerging market investment trusts and well ahead of the 2.57% yield on the MSCI AC Asian Pacific (ex-Japan) index.

“The trust’s 17.5% year-on-year dividend increase in 2023 added to its 15-year track record of dividend growth – making it a next-generation ‘dividend hero’ with a five-year dividend compound annual growth rate of 8.2%,” says Peel Hunt analyst Anthony Leatham.

Outperformance versus rivals has benefited from active stock selection, as well as sector and regional allocations, particularly being underweight China.

“We see abrdn Asian Income offering income investors a differentiated dividend story while trading on an undemanding -13% discount to net asset value [NAV] – much wider than the Asian equity income peer group weighted average discount of -7%,” adds Leatham.

JOHCM UK Equity Income
Yield: 4.9%

Fairview Investing director Ben Yearsley reckons JOHCM UK Equity Income is “ideal for most types of investors, adding ballast to higher-risk investors and much-needed income growth to more balanced ones”.

“If your salary had increased 5% every year for 19 years, you’d be pretty happy I bet,” he says. “Well, this fund has effectively done that, increasing its dividend payout by 5% annualised since 2005.”

For every £100 invested at launch, you will receive almost £11 in dividends compared to the first full-year payout of less than £4, and your capital value has doubled.

“That feels like having your cake and eating it to me,” says Yearsley. “If you invest in this fund today, you’re getting a yield of 4.9% – much higher than risk-free gilts and with that aforementioned potential to grow.”

Alternatives

Greencoat UK Wind
Yield: 7.4%

“Investors seeking a dividend yield above 5% from investments trusts are presented with as much choice as a child in a sweet shop right now. However, one trust that stands out is Greencoat UK Wind (LSE:UKW), says Momentum Global Investment Management (MGIM) portfolio manager Richard Parfect.

MGIM has owned Greencoat UK Wind across its portfolios since its initial public offering (IPO) in 2013.

“With an excellent track record since its IPO in March 2013, the management team has delivered dividend growth every year to match RPI [the Retail Prices Index], which includes 2023 when inflation was above 13%,” says Parfect.

The trust boasts a share price total return of 129.2% over 10 years, according to Deutsche Numis, making it the clear leader in the renewable energy infrastructure sector.

“Share prices across the sector have been weak since September 2022 as bond yields increased and power prices fell. However, there’s reason to believe both of those factors are beginning to reverse,” adds Parfect.

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Downing Renewables & Infrastructure
Yield: 6.9%

QuotedData likes Downing Renewables & Infrastructure Ord (LSE:DORE) for its well-covered dividend yield and portfolio diversity.

“It set out to diversify by geography and technology, which it has achieved with a mix of hydro, solar, wind and grid services in the UK, Sweden and Iceland,” says its head of investment companies James Carthew. “This trust is the only way for UK retail investors to get access to some of these areas.”

Having launched in December 2020, it ranks top quartile over one and three years. Future returns are expected to come from the upgrade of its hydropower assets and grid-balancing activity in the Nordics and UK.

Shares can be bought at around a -30% discount to NAV, which is “entirely unjustified but offers investors decent upside if it closes”, adds Carthew.

BBGI Global Infrastructure
Yield: 5.8%

Peel Hunt likes BBGI Global Infrastructure Ord (LSE:BBGI) for its “very attractive” yield and globally diversified portfolio. The trust focuses on social infrastructure and availability-based revenues with high-quality, typically public sector, counterparties.

“The avoidance of regulated and demand-based revenue assets distinguishes BBGI from its core infrastructure peers, and its high-quality inflation linkage has supported higher dividend growth targets,” says analyst Markuz Jaffe.

The trust has a 2024 dividend growth target of around 6% and has delivered the best total returns in its sector over one, three, five and 10 years, while having the lowest fees.

He adds: “BBGI currently trades on high single-digit discount to NAV, which continues to be reasonably priced when compared to its five-year average premium of 13%.”