Inflation is on the rise again in the UK – with the latest figures at 3.8% for July. Forecasts expect this to peak at 4% when August’s number is released in September.
Driven primarily by higher food prices and air fares, doubts are now being sown about another interest rate cut this year.
So how can investors tackle the eroding effect of inflation on their portfolio?
This article isn’t personal advice. If you're not sure if a course of action is right for you, ask for financial advice. Remember, all investments rise and fall in value, so you could get back less than you invest. Yields are variable and no income is ever guaranteed. Past performance also isn’t a guide to the future.
3 income fund ideas to beat inflation
With inflation showing no signs of fading away, investors will be looking for ways to beat it.
One way is to seek out income.
While no yield is guaranteed, and income payouts can go down as well as up, a well-diversified income portfolio, invested in a range of assets and geographies is a good place to start.
By investing in stocks that typically outpace inflation, like real estate or big name companies, income funds can generate inflation-adjusted income through strong earnings growth or regular dividends.
Investing in these funds isn’t right for everyone. Investors should only invest if the fund’s objectives are aligned with their own, and there’s a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.
For more details on each fund, its charges and risks, use the links to their factsheets and key investor information.
Artemis High Income
If funds were hairstyles, Artemis High Income would be the mullet of the strategic bond sector.
Rather than having the traditional equal split of assets three ways between government bonds, investment grade bonds and high yield bonds, this fund invests differently.
It aims to generate a high income for investors, by investing predominantly in high yield bonds, which adds risk. Managers David Ennett and Jack Holmes focus on finding cash generative companies which possess pricing power. This includes spending time analysing the dynamics of both the industry in which the company operates in and the company itself.
They also invest some of the fund’s assets in company shares to boost the fund’s income and growth potential and complement some of its bond investments. Charges can be taken from capital, which can increase the yield but reduces the potential for capital growth.
We think Ennett and Holmes are talented high-yield bond fund managers with plenty of relevant experience and benefit from the support and challenge provided by a strong fixed income team at Artemis, led by Stephen Snowden.
The fund currently yields an inflation busting 5.60%.
Annual percentage growth
Jul 20 – Jul 21 | Jul 21 – Jul 22 | Jul 22 – Jul 23 | Jul 23 – Jul 24 | Jul 24 – Jul 25 | |
|---|---|---|---|---|---|
Artemis High Income | 13.20% | -8.38% | 3.64% | 12.77% | 9.42% |
IA £ Strategic bond | 5.53% | -8.95% | -1.67% | 9.35% | 5.86% |
Jupiter Asian Income
The fund, managed by Jason Pidcock and Sam Konrad, aims to deliver income and capital growth over the long term by investing in mainly larger businesses in developed Asian countries.
Pidcock is a highly experienced fund manager who has been investing across Asia for over 30 years. He invests in financially robust, income-paying companies that have the potential to grow dividends over time. The fund aims to provide an income at least 20% higher than the fund's benchmark.
The stock-picking process seeks companies that make plenty of cash, have low levels of debt and are in good financial health. These businesses are typically industry leaders with advantages that are hard to replicate. The managers also pay close attention to wider economic factors when making investment decisions.
The focus on quality, dividend-paying companies means we expect the fund to hold up relatively well when markets fall. The fund is concentrated, which increases risk, as does its ability to invest in emerging markets.
The fund yields a healthy 3.56%, which while under current inflation rates, can vary. Note that charges can be taken from capital, which can increase the yield but reduces the potential for capital growth.
Annual percentage growth
Jul 20 – Jul 21 | Jul 21 – Jul 22 | Jul 22 – Jul 23 | Jul 23 – Jul 24 | Jul 24 – Jul 25 | |
|---|---|---|---|---|---|
Jupiter Asian Income | 17.80% | 11.47% | 3.81% | 20.34% | 7.91% |
IA Asia Pacific ex Japan | 18.22% | -5.56% | 0.13% | 4.49% | 13.31% |
Royal London Corporate Bond
This fund, managed by Shalin Shah, focuses on investment grade bonds and aims to provide an income alongside some capital growth.
Shah and his team are prepared to invest in parts of the bond market a lot of other investors ignore. Looking for opportunities in under-researched areas like unrated bonds can throw up chances to boost returns. That said, this is a higher risk approach and means there’s potential for investments in the fund to be more volatile.
We think the team's edge comes from their detailed research into 'low-profile' parts of the market. These types of bonds can be higher risk and can pay a higher income to compensate for this.
The managers aim to be well diversified through exposure to a range of different sectors and continue to believe that the yield on offer from investment grade corporate bonds compensates investors for default risk.
The fund also uses high-yield bonds which can add further risk. Charges can also be taken from capital, which can increase the yield but reduces the potential for capital growth.
The fund yield currently sits comfortably above inflation at 5.81%.
Annual percentage growth
Jul 20 – Jul 21 | Jul 21 – Jul 22 | Jul 22 – Jul 23 | Jul 23 – Jul 24 | Jul 24 – Jul 25 | |
|---|---|---|---|---|---|
Royal London Corporate Bond | 6.56% | -11.02% | -3.37% | 11.82% | 6.42% |
IA £ Corporate Bond | 2.88% | -11.46% | -5.86% | 10.01% | 4.64% |