Focus on total returns

Enhanced income funds do provide some protection in falling markets.

They have performed better than their sectors and benchmarks, and very slightly better than their un-enhanced sister funds when markets are down. However, they significantly underperform during market rallies.

Over the past five years, enhanced income strategies have an average downside capture of 89.5 per cent compared to their sector benchmarks. In comparison, the average upside capture is 54.8 per cent.

I have not touched on the issue of yield and whether investors would be better investing for income or investing for growth and then selling a portion of their investments to generate cash.

But when it comes to investment performance, income funds offer a little in the way of downside protection, but give up a lot of upside when markets are rising.

Therefore, I remain a strong advocate for a total return approach to portfolio management, rather than income target.

Charles Younes is research manager at FE Investments