"income" investment funds

MadMat

A bit of a newbie question,  I've been looking for monthly income funds,  and am not 100% clear on what I'm reading on fund factsheets
for instance Legal & General Active Global High Yield Class I - Income
List an annual return of 9.23% over the last year and a yield of 6.9%

Does that mean If I held that fund over the last 12 months I would have been paid out 6.9% in interest payments and seen the value of my holding increase approx. 2.4% or am I completely misunderstanding it (I'm looking at the factsheets on HL)

TIA

Mat

ColdIron

Broadly yes. That 9.23% is the total return, a combination of interest and share price growth. If you toggle between Total Return and Price on HL's charting it should be more obvious to you

Is there any reason you are restricting yourself to monthly payers? With a small cash buffer you could cast your net much wider

MadMat

Mainly due to the size of the investment - I have an old small final salary pension that I plan to put into payment in a few months,  the lump sum part of it will be around £30k   I was looking for options for somewhere relatively safe to park it and maybe draw off some of the interest . . . and savings account interest rates seem to be on the way down!

ColdIron

I wasn't querying the need for income, rather your choice of funds that pay monthly instead of the far more common quarterly etc ones

LHW99

I think the only thing with income funds, monthly or another frequency is that very roughly the higher the monthly payment %-wise, the lower the fund / share price capital growth % tends to be.

Also bear in mind that fund charges for monthly payers are likely to be higher than (particularly) tracker funds. However with (most?) trackers, the income / dividend is generally low, and people take an income by selling a few units every month / when needed, often by using the Acc rather than Inc units.

InvesterJones

If looking for something relatively safe, then maybe a junk bonds fund isn't the most appropriate.

Linton

InvesterJones said:

If looking for something relatively safe, then maybe a junk bonds fund isn't the most appropriate.

In my view, as a source of income global high yield funds are relatively safe, certainly safer than equities.. Capital value may be volatile but income is steady.  Legal & General Active Global High Yield quoted by the OP has over 800 investments mostly of 5 or less years duration. 

The one caveat I would have regarding the fund is that it is currently 60% US which seems high to me - too many eggs in one basket.

chiang_mai

Linton said:

InvesterJones said:

If looking for something relatively safe, then maybe a junk bonds fund isn't the most appropriate.

In my view, as a source of income global high yield funds are relatively safe, certainly safer than equities.. Capital value may be volatile but income is steady.  Legal & General Active Global High Yield quoted by the OP has over 800 investments mostly of 5 or less years duration. 

The one caveat I would have regarding the fund is that it is currently 60% US which seems high to me - too many eggs in one basket.

Does the low credit ratings not concern you, they are all either BB or B?

I considered such funds for a while and to'd and fro'd over BNY Mellon Short Dated Global Hi Yield. It has an MS  risk rating of 24 which is very low and duration is 2.38. I was attracted to this because the downside capture rate was very low. Ultimately I decided against it because the average credit rating is B+. But comparing the two funds, mentioned here, I'd take BNY over the alternative, simply because of the lower risk profile. 

Linton

chiang_mai said:

Linton said:

InvesterJones said:

If looking for something relatively safe, then maybe a junk bonds fund isn't the most appropriate.

In my view, as a source of income global high yield funds are relatively safe, certainly safer than equities.. Capital value may be volatile but income is steady.  Legal & General Active Global High Yield quoted by the OP has over 800 investments mostly of 5 or less years duration. 

The one caveat I would have regarding the fund is that it is currently 60% US which seems high to me - too many eggs in one basket.

Does the low credit ratings not concern you, they are all either BB or B?

I considered such funds for a while and to'd and fro'd over BNY Mellon Short Dated Global Hi Yield. It has an MS  risk rating of 24 which is very low and duration is 2.38. I was attracted to this because the downside capture rate was very low. Ultimately I decided against it because the average credit rating is B+. But comparing the two funds, mentioned here, I'd take BNY over the alternative, simply because of the lower risk profile. 

The credit rating does not concern me because:
a)  the fund is spread over 800+ bonds 
b) the durations are relatively short.
c) If I bought the fund, it would probably be about 10-20% of my income portfolio.

From Morningstar, The ratings of the underlying bonds of the two funds are much the same, if anything the L&G ratings are slightly higher.  The higher capital value volatility and lower long term capital value performance of the L&G fund, which I guess would drive the MS Risk value, are irrelevent as I would buy the fund purely for the ongoing income.

The L&G fund has a significantly higher Yield than the BNY fund.

MadMat

I picked that fund more as an example to make sure I was understanding the fund data sheet correctly, not because I was seriously considering investing in it.       suggestions of relatively low risk ways to beat inflation on £30k very welcome though.  I have a few months to do some research.  and I have both mine and the wife's ISA allowances for next year available for use, so sticking it inside some sort of ISA seems a no-brainer to me!

InvesterJones

MadMat said:

I picked that fund more as an example to make sure I was understanding the fund data sheet correctly, not because I was seriously considering investing in it.       suggestions of relatively low risk ways to beat inflation on £30k very welcome though.  I have a few months to do some research.  and I have both mine and the wife's ISA allowances for next year available for use, so sticking it inside some sort of ISA seems a no-brainer to me!

What sort of time frame are you looking to hold it for? In the short term cash/money market funds/very short duration bond funds should be low risk and at the moment are beating inflation. Going out a few years and they'll drop in returns if interest rates come down, so fixing via cash ISA or gilts might lock in a rate that's currently just above inflation. Or you could buy inflation linked gilts which would offer a real return above inflation (more so, the longer the duration) - usual caveat that your personal inflation is unlikely to exactly match an official measure.