Six funds for a low interest rate environment

We asked three experts to highlight their equity and bond fund picks for a low interest rate environment.


Tom Stevenson, investment director for personal investing at Fidelity International, recommends Invesco Perpetual European Equity Income. He says: 'Managed by Stephanie Butcher, it adopts a highly collegiate approach and focuses on sharing ideas and materials.

“She and her team members will typically conduct over 400 company meetings each year and, while the meetings themselves may not result in an investment in a given company, they often provide interesting insights into suppliers or competitors not previously considered.

“Butcher and her team use screening tools to filter stocks which look attractive from a valuation perspective and which may warrant further investigation. She then looks to build a diversified portfolio of stocks with good dividend prospects.”

Brian Dennehy, managing director of, agrees that the IP European Equity Income fund, which has a yield of 3.1%, is interesting. But he points out that the fund only launched in 2012, so there is no decent track record on income payouts yet.

Mr Dennehy says that while Europe has “some valuation attractions (unlike the US), the EU project is very fragile, and these macro risks are very real, as Brexit illustrated”.

He adds: “This might be an opportunity for the brave, but "safe and reliable" it isn't. Nothing is safe and reliable, so it is all about moving the odds of success in your favour.”

Gavin Haynes, managing director of wealth manager Whitechurch Securities, favours dividend-producing UK funds.

“In particular, I am looking for funds that invest in quality businesses that can grow dividends despite a low-growth climate - but the key is to find stockpickers who can unearth these gems at reasonable valuations. I would recommend Evenlode Income, managed by Hugh Yarrow; and Woodford Equity Income, under Neil Woodford.”


“I would also extol the virtues of having an internationally diversified equity income portfolio. Although having overseas funds does add currency risk, I believe this is outweighed by the added level of diversification it can provide a portfolio, with opportunities across global markets to invest in attractive dividend stocks. Newton Global Income is a solid choice in this area.”



Mr Haynes says that fixed interest will remain supported by a lower-for-longer interest rate environment.

“Although I struggle to be attracted by the lack of yields on offer from government bonds, I prefer to utilise strategic bond funds that invest across the fixed income spectrum.

Jupiter Strategic Bond managed by the highly regarded Ariel Bezalel takes a special situations approach to seeking out value across global bond markets.”


Another of Mr Haynes' favourites in this area is Henderson Strategic Bond, managed by John Patullo and Jenna Barnard.

This fund will invest in all types of bonds from government to corporate bonds and across the risk spectrum holding investment grade and high yield bonds.


Investment attitude

Historically, many income seekers would never ordinarily have chosen 'risk investments' as a solution, says Mr Dennehy. A large emphasis would have been placed on building society or bank deposits, or, where a pension fund was being deployed, an annuity would be purchased.

“Even now a good proportion of such people will struggle on, emphasising low-return deposit accounts with their savings. Sadly the problem is often a lack of understanding of alternatives and a concern that sources of decent advice are too expensive or unreliable. The solution is often extending one's working life or downsizing the house.”

He argues that the best solution is more often than not income funds linked to the stock markets (so-called equity income funds).

“To take advantage of this potential, income seekers must adjust their mental approach. This means not obsessing about the day-to-day moves of the capital value, and rather focusing on the lack of volatility and relative predictability of the income being paid out to you year after year.”

But he cautions that if there were extreme stock market falls such as occurred in 2008/09, worried finance directors would cut dividend payouts. In 2008/09, some equity income funds cut payouts by 30%.

“These sorts of occasions are rare, perhaps once every 30 years on average - but that doesn't mean it can't happen twice in 10 years,” observes Dennehy.

“Income levels have been rebuilt by funds since 2008/09, which is very encouraging, but this risk needs to be understood. It also means you should have a reserve of capital, which can be brought into play in a two- to five-year period during a long retirement when income might come under pressure in this way.”

This article was originally written for our sister magazine, Money Observer.

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