We don’t support this browser anymore.
This means our website may not look and work as you would expect. Read more about browsers and how to update them here.

Skip to main content
  • Register
  • Help
  • Contact us

High Income

Funds in this sector do what they say on the tin – they aim to pay a high income to investors.

Josef Licsauer - Investment Analyst
15 February 2022

Funds in this sector do what they say on the tin – they aim to pay a high income to investors.

There’s more than one way to try to achieve this though, and funds can use different approaches and invest in different areas.

Some funds focus on bonds. These tend to pay a fixed rate of income, but the amount varies depending on the risk associated with the investment. Government bonds are perceived to be lower risk and pay a lower income to reflect this. Corporate bonds offer higher yields because of the extra risk taken for lending to companies. Bonds can be less volatile than company shares, but offer less potential to grow your income and initial investment.

Other High Income funds focus on dividend-paying shares and offer more potential for long-term growth. The UK has tended to be one of the highest-yielding markets in the world, so that’s where a lot of income managers focus their attention. There’s an increasing number of overseas companies that pay dividends as well though, which means High Income funds which hold these offer investors diversification away from the UK.

There are also High Income funds with the flexibility to invest in alternative investments. In addition to shares and bonds, they might also invest in currencies, property or commodities.

Remember, investments and the income they produce can fall as well as rise in value so you may not get back what you invest, and they should be considered for the long term. Income will vary and doesn’t provide a guide to the income you’ll receive in future. This should not be viewed as personal advice, so please seek advice if you're unsure.

Our view

We think funds in this sector are a great choice to potentially get paid a high income.

Interest rates are still at historic lows and unlikely to rise significantly in the short term. So the prospect of an income from some of the world's more successful companies, or areas of the market, is attractive for investors willing to accept the risks.

But the risks are greater if you only chase the highest yields, or invest in a narrow range of high-yielding investments. This creates a higher hurdle to grow your income each year, and sooner or later it could become unsustainable.

In our view it’s important to balance a high income, dividend growth, and the aim to grow the value of your investment. It’s not easy though, which is why we think it makes sense to invest with professional fund managers with good track records.

It’s worth considering where each fund invests and what it tries to achieve. Some funds have more flexibility than others, so they may change where they invest over time depending on where they find the best opportunities for income. Overall, we think these funds could help maximise the potential for a high income, or be used to diversify a wider income portfolio.

Investment notes

Please remember past performance is not a guide to future returns. Where no data is shown, figures are not available. This information is provided to help you choose your own investments, remember they can fall as well as rise in value so you may not get back the original amount invested.

Wealth Shortlist funds in this sector

Funds chosen by our analysts for their long-term performance potential

See THE WEALTH SHORTLIST

Funds in this sector invest in different areas of the market, and some are more flexible than others. This means that performance will vary widely between funds.

Following a turbulent year, global share markets bounced back in the first half of 2021. Effective vaccines helped mitigate some of the health impacts caused by COVID and provided some countries the opportunity to ease restrictions and boost their economic recovery. Over this period, major share markets recovered fully from the previous year’s losses, despite gross domestic product (GDP) remaining below pre-pandemic trends in most countries.

Over the last 12 months, global shares returned 18.56%, though this has varied by country and sector.

A lack of vaccine availability in certain parts of the world and a resurgence in cases from the Delta and Omicron variants subsequently impacted global economic recovery efforts, forcing many back into lockdowns.

Economies are also experiencing rising energy prices and supply disruptions. This has resulted in the highest levels of inflation seen for almost thirty years in the UK. As restrictions are eased demand has flooded back and overwhelmed supply chains, pushing prices higher for certain sectors.

The US outperformed other global and UK shares over 2021 but so far in 2022 the UK has held up better than the weaker US. Growth stocks, including technology companies, are more prevalent in the US compared to the UK, and have fallen out of favour. Sectors more closely linked to the health of the UK economy, including oil & gas and financials have done better. This is over a very short time though and past performance isn’t a guide to future performance.

Global stock market performance over 5 years

Scroll across to see the full chart.

Annual percentage growth

Scroll across to see the full table.

Jan 17 – Jan 18 Jan 18 – Jan 19 Jan 19 – Jan 20 Jan 20 – Jan 21 Jan 21 – Jan 22
FTSE All-Share 11.28% -3.83% 10.67% -7.55% 18.90%
FTSE Emerging 22.00% -6.53% 6.07% 19.95% -1.20%
FTSE USA 11.89% 5.51% 21.75% 14.65% 23.76%
FTSE World 12.72% 0.88% 17.14% 11.78% 18.56%

Past performance is not a guide to the future. Source: Lipper IM to 31/01/2022.

While 2021 was generally positive for shares, it’s been a different story in bond markets, due to increasing inflation and the likelihood of higher interest rates. This has created a challenging environment for bond markets and over the past year the average fund in the IA £ Corporate Bond sector fell 3.51% and the IA UK Gilt sector fell 6.81%.

On the other hand, UK Index Linked Gilts and high yield bonds produced positive returns over the past year.

UK Index Linked Gilts are linked to the rate of inflation and have benefited from the recent increase. High yield bonds aren’t as sensitive to rising interest rates but have benefited from stronger corporate profits and increased consumer spending. These bonds are issued by companies that are less likely to be able to pay off their debts though and have tended to do less well when the economic outlook weakens.

Global bond market performance over 5 years

Scroll across to see the full chart.

Annual percentage growth

Scroll across to see the full table.

Jan 17 – Jan 18 Jan 18 – Jan 19 Jan 19 – Jan 20 Jan 20 – Jan 21 Jan 21 – Jan 22
IA £ Corporate Bond 5.42% -0.16% 10.37% 4.44% -3.51%
IA £ High Yield 5.31% -1.13% 8.66% 3.60% 2.21%
IA UK Gilt 2.27% 3.18% 9.82% 2.92% -6.81%
IA UK Index Linked Gilt 0.66% 2.45% 10.45% 3.50% 4.77%

Past performance is not a guide to the future. Source: Lipper IM to 31/01/22.

Income update

Despite some ups and downs, the last five years have been a good period for growth-oriented investors, but it’s remained a more challenging environment for investors seeking a higher income. The yields offered by various asset classes are low, with investors needing to take on a higher level of risk, to receive a given level of income, than has been the case in previous market eras.

Meanwhile, the prospect of higher inflation – whether it proves transitory or more lasting – confronts income investors with a further risk of eroding their ‘real’ (or inflation-adjusted) income. There are increasing signs that pent-up demand and supply constraints could push up prices, while at the same time central banks might let inflation run higher in the short term after a period of low inflation.

UK shares have traditionally offered relatively attractive dividends and they currently offer a higher yield than global shares. 2020 was a challenging year for equity income investors, but 2021 has been much stronger. Dividends soared towards the end of 2021, recovering by almost 90%. This was driven largely by large one-off special dividends and a surge within the mining sector.

The global economic recovery pushed commodity prices higher, causing a surge in profits for mining companies last year. Mining, oil, and banking dividends contributed the most to this bounce back but certain consumer discretionary sectors, including parts of retail, continue to struggle with dividend pay-outs.

UK dividends rebounded from the lows of 2020, by around 44.8%, which equates to roughly £93.2bn. We may see this growth push throughout 2022, buoyed by banks. But pay-outs remain below pre-covid levels, so there are no guarantees and yields are not a reliable indicator of future income.

We’ve seen an increase in companies in other markets paying out profits as dividends, including parts of Asia and the US. We also saw global dividends prove more resilient than UK dividends in 2020. So it’s worth considering overseas investments for an income portfolio too. This also gives some exposure to foreign currencies, which can be beneficial if sterling is weak, but the opposite’s true if the pound’s strong.

In terms of bonds, we think government bonds are still useful to diversify a portfolio. But yields are low and the effect of inflation means investors get little reward in the form of income for lending to governments, particularly in the case of developed markets. Corporate bonds, including high-yield bonds, offer more attractive yields for investors able to accept the extra risk. It’s a similar story with emerging market bonds.

Bonds are less likely to offer much in the way of income growth, but they’re a good way to help diversify an income portfolio focused on shares.

Yields of various asset classes (%)
Global high yield bonds 5.35%
Emerging market bonds 5.72%
European high yield bonds 3.52%
UK shares 2.98%
Asian shares 2.52%
Global shares 1.76%
UK corporate bonds 2.48%
UK government bonds 1.31%

Yields are based on past income, so they aren't a reliable guide to future income. Source: HL as at 31/01/2022.

Investment notes

Please remember past performance is not a guide to future returns. Where no data is shown, figures are not available. This information is provided to help you choose your own investments, remember they can fall as well as rise in value so you may not get back the original amount invested.

Our Wealth Shortlist features a number of funds from this sector, selected by our analysts for their long-term performance potential. The Shortlist is designed to help investors build and maintain diversified portfolios. To use the Shortlist to build your portfolio, you should be comfortable deciding if a fund fits your investment goals and attitude to risk. For investors who don't feel comfortable building and maintaining their own portfolio we offer ready-made solutions, which are aligned to broad investment objectives. For those who want extra help, you can also ask us for financial advice.

The fund reviews below are provided for your interest but are not a guide to how you should invest. For more information, please refer to the Key Investor Information for the specific fund. Remember all investments can fall as well as rise in value so you could get back less than you invest. Past performance is not a guide to the future. The funds in this review take their charges from capital, which could boost income but reduce the potential for capital growth.

There is a tiered charge to hold funds on the HL platform. It is a maximum of 0.45% a year - view our charges. Comments are correct as of 31 January 2022.

Wealth Shortlist fund reviews

Source for performance figures: Financial Express

This fund aims to pay a higher income than many other funds. Shares form most of the fund and have the potential to generate an income and long-term growth. The fund invests mainly in developed countries but also takes some emerging markets risk. Some investments in bonds and cash provide diversification, and could reduce part of the volatility that normally comes with only investing in shares. We think the fund could work well in a portfolio focused on trying to achieve an income, alongside some capital growth. It could also provide some balance alongside equity funds in a more adventurous income-focused portfolio.

In November 2021, the fund changed its name from EdenTree Higher Income. A responsible and sustainable investment screen was also added to the fund’s existing investment process. This change was designed to ensure that environmental, social and governance (ESG) risks and opportunities are more explicitly considered, as sustainability takes on greater importance in the global economy.

The fund continues to be managed by Chris Hiorns, who took over from Robin Hepworth as lead manager in November 2020. We’ve analysed how Hiorns has managed a similar strategy in the past - combining a more ESG-focused approach with a higher income objective - and believe he can deliver on the fund's objectives of higher income combined with capital growth.

Hepworth remains a co-manager, working alongside Hiorns three days a week. Hiorns shares a similar investing philosophy to Hepworth so we think they’ll continue to work well together. They prefer to invest in companies that have been overlooked by other investors, also known as value investing, and pay an above-average yield.

This fund is focused on producing a high income mainly by investing in bonds, but it can also invest up to 20% in UK and European shares. A focus on high-yield bonds and shares makes it a little different from most bond funds, though it also makes it a higher-risk option. The fund could be a good option to diversify a conservative bond portfolio, or a more adventurous shares portfolio seeking exposure to other asset classes.

David Ennett is now the lead fund manager, taking over from Alex Ralph who stepped down as lead manager in September 2021. Ennett has 20 years’ experience in the industry, specialising in high yield bonds, which the fund focuses on heavily. We also view the fixed income team at Artemis positively. It is led by Stephen Snowden and is highly experienced.

We are pleased to see an element of continuity with Ed Legget remaining in place. He chooses the UK and European shares for the fund.

The fund has delivered a good level of income over the longer term. Investments in high-yield bonds and shares can increase volatility though. This means the fund might not hold up quite as well as some other funds in the sector when bond markets go through a tough patch.

Latest research updates

Artemis Corporate Bond: May 2022 fund update

Artemis Corporate Bond: May 2022 fund update

Fri 20 May 2022

In this fund update, Senior Investment Analyst Joseph Hill shares our analysis on the manager, process, culture, ESG integration, cost and performance of the Artemis Corporate Bond fund.

Artemis High Income: April 2022 fund update

Artemis High Income: April 2022 fund update

Wed 27 April 2022

In this fund update, Senior Investment Analyst Joseph Hill shares our analysis on the manager, process, culture, ESG integration, cost and performance of the Artemis High Income fund.

Invesco UK Equity High Income fund: May 2021 update

Invesco UK Equity High Income fund: May 2021 update

Tue 11 May 2021

Senior Investment Analyst David Holder shares our analysis on the manager, process, culture, cost and performance of Invesco UK Equity High Income fund.

Artemis Corporate Bond: April 2021 fund update

Artemis Corporate Bond: April 2021 fund update

Fri 30 April 2021

In this fund update, Investment Analyst Joseph Hill shares our analysis on the manager, process, culture, cost and performance of the Artemis Corporate Bond fund.

Artemis High Income: April 2021 fund update

Artemis High Income: April 2021 fund update

Fri 16 April 2021

In this fund update, Investment Analyst Joseph Hill shares our analysis on the manager, process, culture, cost and performance of the Artemis High Income fund.

Investment notes

Please note the research updates are not personal recommendations to trade. If you are unsure of the suitability of an investment for your circumstances please seek advice. Remember all investments can fall as well as rise in value so investors could get back less than they invest.

Fund research

Our expert research team provide regular updates on a wide range of funds.

See fund updates