While strong returns in UK equity markets are keeping investors happy, yields in the bond market continue to rise on speculations a rate hike is coming sooner from the Bank of England. With uncertainty surrounding the UK markets, funds with investments in both equity and bond sectors may be able to diversify risks in order for better returns.
The UK Equity and Bond Income sector includes funds which must invest at least 80 per cent of their assets in the UK, between 20 per cent and 80 per cent in UK fixed interest securities and between 20 per cent and 80 per cent in UK equities. Just 12 funds sit in the sector.
According to the Investment Association (IA), funds must aim to have a yield in excess of 120 per cent of the FTSE All Share index. The CF Canlife UK Equity and Bond Income fund leads the list with a return of £1,094 on an initial investment of £1,000 over a one-year period to 3 August. The £120.2m fund allocates 74 per cent of its assets in UK equities, 23.5 per cent in UK fixed interest and the remaining 2.5 per cent in cash. Its top five holdings includes names like the BT Group, Imperial Tobacco and Prudential.
This is followed by the Threadneedle Monthly Extra Income fund with a return of £1,087 on an initial investment. The fund invests at least two-thirds of its assets in shares in UK companies and in bonds issued in British pounds. The fund has 77.6 per cent invested in UK equities, 15.8 per cent in UK fixed interest and the remaining 3.9 per cent in global fixed interest.
The bottom five funds in this sector have managed to return more than the initial amount invested. But the Scottish Widows High Reserve fund is the worst performing fund as of today, despite returning £1,032. The fund invests mainly in UK shares and fixed interest securities but has the option of investing in Europe. It has more than 74 per cent of its asset allocated in UK equities, followed by 23.3 per cent in UK fixed interest and the remaining in futures and cash.
M&G’s £410.5m Extra Income fund is the second worst performing fund with a return of £1,051. The fund invests in a range of UK equities with 75.6 per cent allocated in this space. The fund’s top holdings include British American Tobacco, Royal Dutch Shell and BP. The fund allocates the majority of its holdings to the fixed interest space.
It is interesting to note the fixed interest sector is popular among most of the funds. But the list of holdings for these funds includes a number of big name defensive equities such as BP, Astrazeneca and Royal Dutch Shell.
| Best And Worst UK Equity & Bond Income Funds, 1 Year To 3 August 2015 | |
| Top 5 | |
| CF Canlife UK Equity and Bond Income fund | £1,094 |
| Threadneedle Monthly Extra Income | £1,087 |
| Cavendish UK Balanced Income | £1,079 |
| Threadneedle Managed Income | £1,078 |
| Marlborough Extra Income | £1,076 |
| Bottom five | |
| Jupiter Monthly Income | £1,063 |
| HSBC Monthly Income | £1,058 |
| CF IM UK Equity & Bond Income | £1,055 |
| M&G Extra Income | £1,051 |
| Scottish Widows High Reserve | £1,032 |
| Figures as at 3 August 2015. Source: FE. | |
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