Income fund: too good to be true?

Shankers

Long time lurker, first time poster. I've benefited a lot from the collective wisdom of this excellent forum, so thank-you. I've enjoyed reading this forum and now I'd like to get involved.

Onto the issue at hand, I've been browsing HL and found this income fund:
ASHMORE EMERGING MARKET SHORT DURATION CLASS Z - INCOME (GBP)
(I can't post links as I'm a new poster).

I know some people dismiss income funds altogether and argue instead that accumulation makes more sense. I see room for both. Concerning the fund mentioned above, is the yield really 15.77%? What's the difference between the 'distribution yield' and 'underlying yield'? Which one would a retail investor 'get,' so to speak, per year (or even per month as it looks as though income is paid monthly)?

Looking at the fund, it's investing in bonds in countries such as Ecuador, Argentina and Lebanon. I imagine this would be a high risk fund at the more volatile end of the spectrum. Does the risk outweigh the 15.77%?

What's the verdict: snog, marry, or avoid?

george4064

Its distribution yield that you are interested in. On the HL website (via computer) if you hover over 'Distribution yield' and 'underlying yield' it gives you a definition of each. I have summarised them below for the benefit of other readers:

Distribution Yield - 'This reflects the amounts that may be expected to be distributed over the next 12 months, as a percentage of the unit price.'

Underlying Yield - 'The annualised income of the fund, net of expenses, as a percentage of the unit price.'

I imagine the yields give crazy numbers because of the nature of the fund, investing in government bonds of countries that are very volatile. This is price volatility as well as foreign exchange volatility.

Personally, I would avoid. But if you do thorough research, understand the underlying portfolio and risks, and happy with them then go invest.

EDIT: Annoyingly it seems Ashmore only produce the factsheet for the Accumulation share class, which is not very helpful for investors in the Income share class!

Linton

I suggest you look at the total returns (capital gain+interest) each year:


2019: -3.6%
2018: 6.6%
2017: 1.8%
2016: 46%
2015:13%


So what do you think is happening to the capital value? If you are looking for sustainable income the first think to check is that the yield is less than the total return.

Shankers

George: thanks for the info re. the two kinds of yield.

Linton: fair point about the sustainability of a fund that can yo-yo between -3.6% and 44% in terms of growth.

Thrugelmir

Shankers wrote: »

Linton: fair point about the sustainability of a fund that can yo-yo between -3.6% and 44% in terms of growth.

The clue is in the fund's title "EMERGING MARKET SHORT DURATION ". Holding debt in countries such as Argentina isn't without it's risks.

SonOf

Linton: fair point about the sustainability of a fund that can yo-yo between -3.6% and 44% in terms of growth.

I think you will find that -40% in a 12 month period is more possible with this fund. Its an extremely high risk bond fund.

Income fund: too good to be true?

No. Its doing exactly what you would expect in the period in question.

Does the risk outweigh the 15.77%?

Its the sort of fund high risk investors may hold around 3-5% of their portfolio in.