3 top income and growth funds to help you achieve financial independence

Rupert Hargreaves — Sat, 22 Jul 2017 07:40:00 +0000

Investment funds can be an excellent way to gain exposure to sectors you don’t really understand and too diversify your portfolio into a broad selection of stocks and different markets, which you may want exposure to, but might not have the time or experience to research the opportunity.

For example, the Fidelity Global Technology offers exposure to the US tech sector, which has been on a roll in recent years. The fund’s largest holding is Alphabet, the parent company of search engine giant Google. The second largest holding is Apple, and the third is Intel. Together these three holdings make up nearly 20% of assets under management.

Actively managed investment funds have faced a lot of scrutiny over the past few years as many don’t offer value for money and have underperformed the wider market. The Fidelity Technology fund does not fall into this bracket. Over the past 4.3 years, the fund has returned 23.5% per annum and only charges an annual management fee of 0.8%, making it one of the cheapest growth funds around.

Growth and income

If it’s income you’re after, the Invesco Perpetual High Income could be a great pick for your portfolio. The fund offers exposure to some of the UK’s best dividend stocks such as British American Tobacco and BP. The great thing about owning a fund like this is that the diversification means your portfolio is unlikely to suffer significantly if one or more of the holdings is forced to cut its dividend payout. With 20+ holdings, Invesco Perpetual offers a diversified income portfolio that would be extremely costly to replicate for yourself.

The fund charges of 0.9% per annum in management fees and currently supports a dividend yield of 3.1%. Over the past five years, the fund has produced a total return of approximately 69%, with a relatively low level of volatility for investors.

So while you may be able to buy stocks that support a higher dividend yield individually, Invesco Perpetual offers a well diversified, low volatility portfolio with a relatively attractive dividend yield that requires no effort on your part.

Small-cap champion

Small-cap stocks are known for their ability to generate outsized returns for investors, but unfortunately, they are also much riskier than their blue-chip peers. That’s why it pays to buy a fund that invests in small-caps for you, so you can pocket the gains but don’t have to spend years becoming an expert on the subject. The Old Mutual UK Smaller Companies Focus fund is a perfect example.

Over the past five years, the fund has smashed its benchmark, returning 237%. No dividend is offered, but you don’t need income when the managers are able to generate such impressive capital gains. The management fee charged is a modest 0.88% per annum.

If you’re looking for a fund that offers exposure to fast-growing small-caps, with a record of outperformance at a low price, Old Mutual UK Smaller companies ticks all the boxes.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Apple. The Motley Fool UK has recommended BP and Intel. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Woodford Beats Woodford: The Great Man Has Outdone Himself

Harvey Jones — Mon, 10 Aug 2015 15:47:05 +0000

Star fund manager Neil Woodford is used to beating the competition, but over the past year he has taken things to a different level.

The former Invesco-Perpetual dividend maestro, long admired here at the Fool, has quite literally surpassed himself.

His new fund, CF Woodford Equity Income, has overtaken his former vehicle Invesco Perpetual Income in size barely one year after launch.

At the end of July, CF Woodford Equity Income was worth a mind-boggling £6.74 billion, despite only launching in June 2014.

That puts it ahead of his flagship Invesco Perpetual Income, launched 35 years earlier in 1979, which holds “just” £6.45 billion.

Woodford v Woodford

What’s in a name? When that name is Neil Woodford, an awful lot. Investors have flocked to his new fund, hoping he would repeat the kind of performance he delivered at Invesco. In the 20 years he was at the helm of Invesco-Perpetual Income, he turned an original £10,000 investment into more than £114,000.

He also won fame for making big contrarian calls, and getting them spot-on. He coolly snubbed the tech sector during ill-fated dot-com boom in the late 1990s, and incredibly, repeated the trick by dumping the banks in the run-up to the 2007 financial crisis. Both times, history proved him right.

Plenty of people now claim they saw the banking blow-up coming, but few put their money where their mouth was, like he did.

Woodford even went head-to-head with the great man himself, Warren Buffett. He offloaded Tesco stock while Buffett was busily buying: a decision Buffett subsequently called one of his worse ever.

Big Winner

There is more to Neil Woodford than his name. The great man certainly isn’t living off past glories. Since launch, CF Woodford Equity Income has become the best performing fund in the Investment Association’s UK equity income sector. It returned 21.9% in that time, compared to 7.3% for the sector and 3.3% for the FTSE All Share, according to figures from AXA Self Investor.

Invesco-Perpetual Income, now managed by Mark Barnett, has returned a respectable 17% over the past year.

Whenever you write articles singling out Neil Woodford for praise, someone always pops up claiming to know a far better manager. The thing is, it is always a different manager: but there is only one Neil Woodford.

Value Man

When Woodford quit Invesco-Perpetual, he was managing £30 billion across a range of funds, including his popular High Income fund. Woodford has a long way to go to beat that mighty behemoth, it is currently worth £12.38 billion (largely thanks to his efforts). At this rate, it may take him, ooh, another year.

Of course, Neil Woodford won’t always thrash the market. His value philosophy will underperform in certain conditions. Active investors might want to balance his fund with a mix of individual stocks and shares plucked from the FTSE 100 and other indices.

So where do you find these stocks? Why not let Woodford be your guide?

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