Whereas most of the IMA sector classifications are based on specific areas of investment, the UK Equity & Bond Income sector straddles two different asset classes. This makes it one of the most varied fund groupings and offers the managers of these funds the opportunity to follow a wide range of investment strategies.

This sector is fundamentally about income. In fact, the sector definition requires its constituents to have a yield in excess of 120 per cent of the FTSE All Share Index. Therefore, the focus of most of the funds in the sector is on generating a high level of income, which ideally should rise over time, while also protecting the long-term value of their investor’s capital.

Close to home
Again, as the name suggests, portfolios are focused primarily on the UK. UK Equity & Bond Income funds must have at least 80 per cent of their assets in the UK, with a maximum of 80 per cent in either equities or bonds. This, of course, gives considerable scope for asset allocation within each portfolio, as the descriptions of our highlighted funds below amply illustrate.

Indeed, despite the relatively small number of funds in the sector, this is one of the most diverse groupings in terms of investment approach. Although all UK Equity & Bond Income funds will have similar objectives of generating an above average level of income while preserving the value of the investor’s capital. They adopt some radically different ways of achieving this, with the investment strategy generally reflecting the particular strengths of each management house.

A variety of strategies
Some funds will be heavily orientated towards equities, while others will predominantly hold bonds and a third group will opt for a balance of the two. There are funds of funds, ethically screened funds, funds that target specific levels of income, funds that pay income quarterly or monthly.

The ability to adjust the balance of these portfolios to take account of market fluctuations has made them increasingly popular with income investors, with the best performing funds in the sector currently among the highest yielding in the whole investment fund market. The idea is that the bond element gives these funds resilience when equity markets are uncertain, while the superior income-generating properties of companies with strong earnings flow helps to drive the yield and maintain the capital value. With many of these funds, you really are getting the best of both worlds.

Ecclesiastical Higher Income
One of the stable of investment funds managed by Ecclesiastical Investment Management, the fund management arm of the insurance company with close links to the Church of England. As such, all of its portfolios are run on the basis of an ethical investment policy. Launched in 1994, the fund has been managed for the whole of that time by Robin Hepworth.

Relatively small, at just under£45 million, the fund seeks to grow the level of income that it generates and the value of its capital over the longer term. This  means that it focuses on undervalued companies, with the potential for both income and capital growth. Currently the portfolio is relatively evenly balanced, with just over 47 per cent in fixed interest and the remainder in equities.

F&C High Income
Managed by Chris Childs since the beginning of 2007, this £278 million fund was launched in January 1993. It is unusual among income funds in that it sets a very specific yield target of providing its investors with a monthly income of two per cent over the prevailing base rate. At the same time, the manager will seek to keep the capital value as stable as possible. Given this objective, the portfolio is heavily weighted towards fixed interest investments, which currently make up 66 per cent of the fund’s assets, with the remaining 34 per cent in UK equities.

Jupiter Monthly Income
Another fund with a focus on monthly income generation, Jupiter Monthly Income, adopts a very different approach. Although it provides its investors with monthly income distributions, there is no set target yield. The fund focuses on achieving a high level of sustainable income, supported by longer-term capital growth, predominantly through a portfolio of investment trust shares. Managed by Laurie Petar since March 2000, the fund is £78 million in size and has a large weighting towards equities, nearly 80 per cent of its portfolio, with the rest in a combination of fixed interest and cash.

CF Canlife Income
One of the range of unit trusts managed by Canada Life Asset Management’s in-house team and administered under the CF banner by Capita Financial Managers. Around £288 million in size, the trust’s objective is to secure an above average level of income consistent with moderate long-term capital growth. The portfolio maintains a predominately equity-based portfolio, currently around 70 per cent in shares and 30 per cent in fixed interest and cash. The fund has a distinctive ethical slant in that it does not invest in tobacco companies.

Threadneedle Managed Income
Managed by Chris White since 2002, and previously by Threadneedle Investment’s chief investment officer Sarah Arkle, Threadneedle Managed Income is £117 million in size, having been launched in 1997. Its objective is to provide a growing income with some capital growth, from a portfolio of other Threadneedle Funds. It is, therefore, a fettered fund of funds. The portfolio is heavily weighted towards equity funds, although the balance can change significantly over time to reflect market circumstances.