Fixed IncomeMay 13 2013

Top 5/Bottom 5: UK Equity and Bond Income

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ByAimee Steen

Covering just 16 funds, the IMA UK Equity and Bond Income sector is one of the more niche areas for funds to sit in.

Many income funds will use a combination of bonds and equities but have a leaning towards one or the other, with perhaps only 10 per cent allowable in whichever is not its core purpose. Funds in this sector, however, are allowed between 20 and 80 per cent in bonds and equities, giving flexibility on finding income.

The sector over 12 months is doing fairly well with an average of £1,224 returned on an initial £1,000, with net income reinvested. All of the funds in the sector managed a return of capital, although best and worse differed by almost £300.

The top performer was the Cavendish UK Balanced Income fund, returning £1,331 on the initial £1,000. Its asset allocation goes some way to explaining this excellent performance, with 74.3 per cent in equities and 23.58 per cent in bonds. Equities do not automatically equal returns, however, and good management of income-yielding stocks is crucial.

At the other end of the scale, the F&C High Income fund returned £1,050 – markedly less, although still at least returning capital. Its allocation is more diverse, with 33.9 in equities, 31.1 per cent in bonds, 20.9 in cash and 14.1 in ‘other’, which includes a derivative overlay strategy to enhance the fund’s yield.

Best And Worst UK Equity Income and Bond funds, One Year to 13 May 2013
Top 5
Cavendish UK Balanced Income £1,331
Threadneedle Monthly Extra Inc £1,269
Threadneedle Mgd Inc £1,257
CIS UK Income and Growth Trust £1,252
JPM UK Equity & Bond Income £1,243
Bottom 5
F&C High Income£1,050
Santander Max 60% Shares Income Port£1,165
Neptune UK Higher Income £1,195
Scottish Widows High-Reserve £1,202
CF IM UK Equity and Bond£1,208
Sector average£1,224
Figires as at 13 May 2013, based on £1,000 initial investment. Source: Morningstar