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Three income funds for ISAs and SIPPs

12 March 2019

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

It's not easy trying to generate a regular income from your hard-earned savings.

Interest rates are still at rock bottom. And we don't think they'll rise significantly in the short term.

One option is to give up the security of cash and turn to the stock market to find a higher income. Many successful companies make strong earnings and pay regular dividends to shareholders. So we think it's a great place for those who can accept the extra risks and have a long-term outlook.

Relative performance of the UK stock market vs. Gilts

Past performance is not a guide to the future. Source: Lipper IM to 31/12/18

The bonus of holding these investments in an ISA or SIPP is that you don't have to pay any income tax. Tax rules can change though and the benefits will depend on your circumstances. Please remember that all investments and their income fall as well as rise in value so you could get back less than you put in.

Here are a few of our favourite income funds that could be considered as part of a wider portfolio. All three take their charges from capital which maximises income but lowers growth potential. All yield figures mentioned are variable, not guaranteed and are not a reliable indicator of future income.

Artemis Income – yield 4.3%

Adrian Frost is an income veteran. He runs the Artemis Income Fund and mostly invests in the shares of larger UK companies.

Nick Shenton and Andy Marsh co-manage the fund and together they look for companies that produce lots of cash and they think are more likely to pay a sustainable dividend that could grow in the future. A number of household names are currently held in the fund, like HSBC and ITV.

Lots of investors have been put off the UK recently because of all the political uncertainty. But many UK companies make most of their profits abroad so they shouldn't be affected so much by what's going on in the UK economy and politics. The fund invests in miner Rio Tinto that makes just 1% of sales in the UK. It also invests in Vodafone, a brand that’s well known in the UK but makes only 12% of its profits here.

Frost has a great record of growing the fund's dividend since he started managing it in 2002. And the value of the fund's also grown by 98%*. If you chose to reinvest the dividends rather than have them paid out, your investment would have grown 292%. It's an enviable record, though past performance is not a guide to future returns.

Annual percentage growth
Feb 14 -
Feb 15
Feb 15 -
Feb 16
Feb 16 -
Feb 17
Feb 17 -
Feb 18
Feb 18 -
Feb 19
Artemis Income 8.2% -3.8% 16.3% 7.0% 0.9%
FTSE All-Share 5.6% -7.3% 22.8% 4.4% 1.7%

Past performance is not a guide to the future. Source: Lipper IM* to 28/02/19

Artemis Income Key Investor Information

Find out more about this fund, including charges

EdenTree Higher Income – yield 4.7%

This fund provides broad exposure to global shares, bonds and cash. Manager Robin Hepworth changes the amount in each depending on his view of global markets. He tends to invest more in shares when he's got a more positive outlook, and more in bonds when things look a bit more uncertain. Around 75% is currently invested in shares, with the remainder in bonds and cash.

He likes companies in robust financial health, which pay good dividends. And he uses a contrarian approach that works well when investing for income. It means he looks for out-of-favour companies whose share prices have fallen and their yields look more attractive. They must have the potential to recover though, at which point it’s hoped that their share price could rise. He also has the freedom to investing in higher-risk emerging markets.

Hepworth has a fantastic track record that stretches back to 1994. He’s an experienced income investor and navigated some difficult markets including the dot-com bust at the end of the 90s and the financial crisis in 2008. Under his stewardship the fund has grown 187%* and performed nearly twice as well as the average fund in the same sector. With dividends re-invested the fund’s grown 700%. Past performance isn't a guide to the future.

Annual percentage growth
Feb 14 -
Feb 15
Feb 15 -
Feb 16
Feb 16 -
Feb 17
Feb 17 -
Feb 18
Feb 18 -
Feb 19
EdenTree Higher Income 8.8% -6.3% 19.7% 5.9% 1.6%
Mixed Investment 40-85% Shares 8.0% -3.7% 19.1% 5.4% -0.1%

Past performance is not a guide to the future. Source: Lipper IM* to 28/02/19

EdenTree Higher Income Key Investor Information

Find out more about this fund, including charges

HL Multi-Manager Income and Growth – yield 4.6%

The HL Multi-Manager Income and Growth Trust invests in a mix of some of our favourite equity income funds available through a single investment.

Managers Lee Gardhouse and Ellen Powley look after the fund. They aim to pay a high and rising income, along with some long-term growth. Diversification is key as it means at least one part of the portfolio should perform well at any given time.

They blend funds that invest in larger companies that tend to pay more stable dividends, with those that invest in higher-risk smaller companies that offer more growth potential. They monitor the portfolio on your behalf and change the investments when they think the time is right.

This approach saves you the time and effort of running your own equity income portfolio. We think it justifies the extra charges involved.

Long-term performance has been strong since the fund launched in 2002. Investors who put £10,000 in the fund then have since received £10,613* back in income and the value of their remaining investment has grown to £20,207. With dividends re-invested, it would now be worth £38,479 but past performance isn't a guide to the future. The fund’s managed by our sister company, HL Fund Managers.

Annual percentage growth
Feb 14 -
Feb 15
Feb 15 -
Feb 16
Feb 16 -
Feb 17
Feb 17 -
Feb 18
Feb 18 -
Feb 19
HL Multi-Manager Income and Growth 10.0% -2.9% 15.1% 3.7% -1.5%
FTSE All-Share 5.6% -7.3% 22.8% 4.4% 1.7%

Past performance is not a guide to the future. Source: Lipper IM* to 28/02/19

HL Multi-Manager Income and Growth Key Investor Information

Find out more about this fund, including charges

This article is not advice. If you are unsure of the suitability of an investment for your circumstances, please seek advice.


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Investment notes
No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.
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