There are now some 600 different unit trusts, open-ended investment companies or investment trusts, whose funds range from corporate bonds, UK income growth, international high income funds and split income trusts. To take the pain out of choosing, here is what some expert independent financial advisers have to recommend.
If it's corporate bonds you are interested in, Jason Hollands of the London-based BESt Investment, recommends that you look at mainstream funds. "There are a number being launched investing in sub-investment grade loan stocks," he says, "but investors who need a reliable source of income should stick with the other funds that put their money in top quality bonds."
As charges are one of the main determinants of variation in performance, he advises to look at the Legal & General corporate bond that has no initial charge and an annual charge of just 0.5 per cent.
Among equity funds, he particularly likes Newton Income and BWD Equity Income. "Both give a reasonable yield and have shown good capital growth over the years."
Elsewhere in London, Kim North of Pretty Financial, points potential corporate bond investors at M&G Corporate High Yield, which was the first into the market with a fund that will look at higher-yielding loan stock offered by non-blue chip companies, the so-called junk bonds.
"In the past, the team managing the fund has got a good reputation for getting its investments right," says North, "and there's no reason now to think that they will start to pick up a lot of stock in companies that will default on their loans."
Among the fixed interest funds, she likes Aberdeen Fixed Interest, currently yielding around 7 per cent. "Among equity funds," she says, "you could consider the income funds from Jupiter, Perpetual, Premier and Royal SunAlliance. My overall favourite, however, is M&G High Yield, especially if it's to be put in a tax-efficient PEP wrapper."
In Shrewsbury, Philipa Gee, of Gee & Co, picks Newton Higher Income as her choice of equity funds: "This pounds 175m fund, which has part of its portfolio in preference shares and corporate bonds, is picked for its overall total returns, both income and growth. The group takes a collegiate view, so performance is not dependent on one fund manager. It picks out mainly blue-chip companies that will produce sustained dividend growth."
From Yorkshire, Graham Bates, of Bates Investment Services, recommends an investment in Save & Prosper's Equity Income. Like many income funds, it concentrates on blue-chip stocks - "The right place to be in the current state of the market," he says. "It's a steady, consistent performer that currently yields around 3.6 per cent."
Ailsa Brown, of RAD Young, in Glasgow, advises a look at the pounds 160m Henderson Preference & Bond fund, currently yielding around 6.5 per cent even if "its performance has been a bit off the boil during the last 12 months". This is because preference shares have been a bit of a drag. But looking at two-year performance, the fund is sixth in the fixed-interest sector, fifth over three years and second over five years. All this time, it has had the same fund manager, according to Brown.
When it comes to corporate bonds, she recommends CGU Monthly Income Plus, presently yielding around 6.8 per cent. "It has very low volatility, meaning that it shows a consistent performance, and while you expect it to show little growth, it has still increased by nearly 60 per cent over five years."
Also in Glasgow, David Thomson, of Aitchison & Colegrave, Scotland's largest firm of independent financial advisers, likes Britannia High Yield: "It has produced consistently good results and has an enviable long-term record, placing it in the top 10 per cent of high income funds."
"Its success is due to strong team performance, with sector specialists responsible for stock selection in their areas of expertise. This means the fund is aggressively managed, making extensive use of fixed interest and convertible instruments, enabling it to buy some lower-yielding growth stocks and sectors."
In Bristol, Roddy Kohn, of Kohn Cougar, advises risk-averse readers to look at M&G's conventional corporate bond. "It has a tried and tested management team, who don't invest in the riskier end of the market such as preference shares, and it is consistently in the top quarter of sector performance tables."
Among equity funds, he particularly likes City of London investment trust, which has produced a consistently rising income as well as good capital growth in asset values, and Johnson Fry Income, another consistent performer.
BESt Investment (0171-321 0100); Pretty Technical (0171-377 5754); Bates Investment Services (01332 955955); Gee & Co (01743 236892); FAD Young (0141-639 6194); Aitchison & Colegrave (0141-332 5961); Kohn Cougar (01179 466384); M&G (0800 328 3196); Britannia (0845 605 0555); CGU (0845 6072439); Aberdeen Prolific (0345 886666); Henderson Investors (0800 832832); Johnson Fry (0171-839 5688); Legal & General (01222 448412); Newton (0800 614330); Perpetual (01491 416123); Premier (08706 006363); Royal & Sun Alliance (08706 016183); Save & Prosper (0800 829100); City of London Investment Trust (0171-410 4100)Reuse content