Investing for income: HL Multi-Manager Income & Growth

Equity income is investing in the purest sense. When you buy shares in a company you (quite literally) own a share of that company and you are entitled to receive a proportion of any profits that are paid out by way of dividends (the income). The best companies will find ways to increase their dividends over time and - all other things being equal - as their dividends rise, so could their share price.

Equity income funds can employ a variety of different approaches, which will perform at different times. In our view, the key is to invest in several different funds - not just one. Over time, diversified portfolios carry less risk and usually provide more consistent returns.

There is no shortage of great equity income fund managers. Yet with so many managers and unique investment styles from which to choose, selecting the right ones can be difficult. A simple solution is the HL Multi-Manager Income & Growth Trust, which provides a diversified portfolio of income funds through one simple investment. Managers Lee Gardhouse and Ellen Powley choose what they believe to be the best equity income funds, and continually monitor the portfolio on investors' behalf.

The core of the trust consists of our favourite UK income fund managers, with a focus on companies paying attractive dividends which can also rise over time. In theory, as dividends increase, share prices often follow, providing capital growth.

We also utilise the trust's ability to invest up to 20% overseas either directly via funds such as the Newton Global Higher Income Fund, or indirectly through other funds with overseas exposure.

The trust currently yields a generous 3.8% (variable and not guaranteed) and importantly, it has grown its income over the long term. There are no guarantees of course, and the income and capital value will fall as well as rise, so investors could make a loss. In our view, equity income funds can form the cornerstone of almost any portfolio, and this fund provides access to what our analysis has identified as the most talented equity income managers in the industry.

Performance of £10,000 invested since interest rates dropped to 0.5%

Past performance is not a guide to future returns. Source: Lipper IM, figures to 2 Feb 2015.

The HL Multi-Manager funds are run by our sister company Hargreaves Lansdown Fund Managers.