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AJ Bell targets 4% yield with launch of two income funds

AJ Bell targets 4% yield with launch of two income funds

Online stockbroker AJ Bell is to launch two income funds, each targeting a 4% annual yield but with different risk profiles and growth objectives.

The lower risk AJ Bell Income fund aims to generate a 4% income while maintaining capital value by largely investing in global government and corporate bonds.

Just over 40% of the portfolio will be invested in international bonds, while a third will be split between gilts and UK corporate bonds.

This asset allocation will be achieved using both active bond funds and exchange-traded funds. The Lyxor FTSE Actuaries UK Gilts 0-5 Year ETF is set to be the largest holding at 15% of the fund.

TwentyFour Corporate Bond, managed by a team at TwentyFour Asset Management, will be a 10% position, while Baillie Gifford High Yield Bond fund, run by Citywire A-rated manager Robert Baltzer, will be a 5% holding.

The AJ Bell Income & Growth fund will target a 4% yield and aim to grow capital in line with inflation, which currently stands at 1.8%. It will do this by investing predominantly in ‘real assets’ such as equities and property, though unusually for a multi-asset fund it has no bond exposure.

Just under a third of the fund will be invested in UK equities, 13% in Pacific ex-Japan funds and 10% in technology.

ETFs will make up five of the top 10 investments, while its largest active fund weighting will be a 10% position in Citywire A-rated manager Henry Dixon’s Man GLG UK Income fund.

JPM Emerging Markets Income will account for 4% of both funds and is run by Citywire A-rated manager Amit Mehta, as well as Omar Negyal and Jeffrey Roskell.  

Both funds will pay out income monthly. Charges on the funds will be capped at 1%, with AJ Bell's cut of that fee fixed and 0.15%. 

AJ Bell said it anticipated the headline charges of the funds, which include the costs levied by the funds they invest in, were likely to be less than 1% when they launch on 8 April.

AJ Bell chief investment officer Kevin Doran said: ‘Income generation is a goal for a huge proportion of investors, particularly with interest rates remaining perpetually low and pension freedoms placing the onus on investors to generate an income from their investments. 

‘These funds give investors two different options that target a 4% income each year, whilst aiming to either maintain their capital or grow it in line with inflation.’

The launch will bolster AJ Bell's own funds offering, after the online stockbroker launched a six-strong passive fund range in 2017.

In January, AJ Bell launched four ready-made portfolios populated by active funds, including an income offering as well as funds suitable for cautious, balanced and adventurous investors. 

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