Legal & General Investment Management has launched the Real Income Builder for external investors.
The fund is outcome-orientated and invests predominantly in large-caps and investment grade fixed income securities. It has been in operation for internal investments since 31 December 2014 and has approximately £500m invested. The fund has been designed to act as an alternative for investors faced by challenges in the defined contribution and individual pension sector, but also targets retail and private wealth clients, charities and foundations.
The fund aims to generate an income that grows by 4 per cent pa plus CPI, measured over three-year periods, assuming income is reinvested. Investors will be exposed to “medium capital risk” which means around two-thirds of equity market risk in a downturn.
The fund will be managed by Lance Phillips, head of active equity at LGIM, and can be used as a stand-alone investment choice or in combination with other investment strategies. Between 40 per cent and 80 per cent is invested in company shares with the remainder being spread between bonds, fixed income securities and cash.
The fund is not subject to any entry or exit charges, and there is no performance fee.
MM Comment
Retirement planning continues to give investors food for thought as they explore strategies to generate income in later life. The pension freedoms have provided more flexible access to pension funds, but have not addressed the issue of providing solid, sustainable income.
Interest rates remain low and expectations are for this to continue in the short term at least, while volatile markets have left consumers pondering whether equity risk is of personal comfort. If this fund meets its objective then many investors will find it attractive, as a return of 4 per cent above inflation is impressive in the majority of economic conditions.Although labelled as ‘income’, the objective is to achieve capital growth. This does not necessarily mean income can not be switched on in the future, but in order to enhance income levels, it should be reinvested over a prolonged period. As with any fund with shares as underlying assets, this should only be entertained by investors comfortable with exposing capital to risk.
