Invesco Monthly Income Plus - does what it says on the tin

Kate Marshall | Tue 23 October 2018

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• This fund focuses on trying to pay an attractive, monthly income
• The managers are relatively cautious about bond and stock markets
• They still see value in some areas, like financials bonds

Our view

This fund can invest in all areas of the bond markets, both in the UK and overseas. But unlike most others in the Strategic Bond sector, it invests up to 20% in shares to boost the income paid and the potential for capital growth.

Paul Read and Paul Causer manage the bond portion of the fund. We rate them highly and like the fact they’re prepared to think differently from other bond investors. Ciaran Mallon manages the portion invested in shares, which is focused on the UK.

The fund isn’t on the Wealth 150 list of our favourite funds. We currently prefer other bond funds run by Read and Causer and think there are better ways for investors to get access to UK companies.

Time to be cautious?

We've lived in a low interest rate, low inflation world for a number of years. When combined with support from the world's central banks, this has helped bond markets perform well for several years. And as bond prices have risen, yields have fallen.

Read and Causer think this is changing. Global economic growth is showing signs of strength, inflation expectations are picking up, and support from central banks is gradually being reduced. At the same time, bond yields are still very low, so prices don't have much room to rise from current levels.

For these reasons the managers think it's right to be cautious. Their main aim at the moment is to pay investors a relatively attractive income. The fund currently yields 5.08%, though this isn't guaranteed or an indicator of future income.

Mallon is also relatively cautious about the stock market. It’s also performed well for most of the past decade. Now he thinks there aren’t many shares that can be bought at a price lower than their true growth potential. He says some pockets of value can still be found though.

How is the fund invested?

The bond portfolio is currently invested in a way that means it shouldn't be affected too much if interest rates rise. Rising interest rates are generally bad for bonds, partly because it makes the income paid look less attractive. So some investors sell bonds in search of higher returns, which could push prices down.

Part of the fund is invested in government bonds, short-term bonds and cash. Government bonds are deemed to be relatively safe, because there's less chance of a country going bust than a company. This means they might hold up better than bonds issued by companies when markets fall.

Government bonds are also quite quick to buy and sell. This is useful for when the managers want to sell them to invest in better opportunities.

Overall the fund is mostly invested in investment grade corporate bonds and high yield bonds. These offer a higher yield to compensate for the extra risk taken. The managers have focused on bonds issued by financial companies, including banks. They think banks are in a much stronger position than they used to be, and they should be able to continue to repay bond holders. Some of the biggest investments are in bonds issued by Barclays, Lloyds and RBS.

15% of the fund is invested in shares. Mallon’s focused on companies he thinks have more predictable cash flows, which could help support a sustainable and growing dividend. Current investments include the Co-operative Bank, Experian, which provides consumer credit scores, and publishing company Informa.

Performance

The fund’s performed well over the long term. It offers an attractive monthly income, and we think it has the potential to do well in future. It’s performed in line with the average fund in the sector over the past five years though and its investments in shares means it has the potential to be more volatile during a market setback. We currently prefer other funds in this sector. Please remember past performance isn’t a guide to future returns, and all investments fall as well as rise in value, so you could get back less than you invest. The managers have the flexibility to use derivatives, which can increase risk.

Past performance is not a guide to the future. Source: *Lipper IM to 30/09/2018

Please note charges can be taken from capital, which can increase the yield but reduces the potential for capital growth.

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