Invesco Monthly Income Plus - Plenty of value in financials

Kate Marshall | Fri 01 November 2019

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• The fund focuses on trying to pay an attractive, monthly income
• The managers believe financial bonds are undervalued
• The fund can hold up to 20% of its investments in shares

Our view

Invesco Monthly Income Plus has a flexible approach which gives the managers the freedom to actively exploit opportunities across bond and equity markets.

The managers invest mostly in corporate bonds, but can invest up to 20% of the fund into UK shares. This can boost the income paid and the potential for capital growth, however, shares are generally higher risk than bonds and have a greater potential for loss. The core bond part of the portfolio is managed by Paul Read and Paul Causer, who also decide the fund's overall asset allocation. They have an outstanding track record in managing a range of fixed interest portfolios and we rate them highly.

The shares element, which is managed by Ciaran Mallon, looks to invest in companies listed in the UK with a high yield, to increase the income provided by the fund. He concentrates on finding companies with the ability to grow their dividends and where management have incentives aligned with those of shareholders.

This fund doesn’t feature on our Wealth 50 list of what we believe are the best funds in each sector. 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 or to achieve a high income.

How’s the fund invested?

The majority of the fund is invested in corporate bonds. This is debt issued by companies who then pay investors interest annually on the money they’ve borrowed, before returning the full amount loaned at the end of the period. Some of this portion is invested in high yield bonds, which are issued by companies that are less financially secure. They pay a higher rate of interest to make up for the greater level of risk taken. The managers are also able to invest in emerging market bonds which can increase risk.

The managers currently think the bonds offered by some companies within the financial sector are among the most attractive in the market. As a result, financials is the largest sector within the fund’s investments in corporate bonds. Read and Causer count bonds issued by Lloyds, Nationwide and RBS as some of their largest investments in this area.

A smaller portion of the fund is invested in government bonds with some also held as cash. Government bonds are considered to be relatively safe investments, as there's usually less chance of a country being unable to repay their loans than a company. These bonds are generally quite easy to buy and sell too, so by holding them the managers can react quickly to take advantage of any opportunities that may appear in the market.

Just under 10% of the fund is currently invested in shares, this is the part of the fund under Mallon’s control. He’s looking for companies that can boost the income that the fund can pay to investors. These companies generally have good visibility of profits and cash flows, meaning he can identify and invest in those that should be able to grow their dividend year after year.

One of the largest investments in this part of the fund is Croda International, the chemical manufacturer and distributor which has grown its dividend for 25 consecutive years, an impressive feat. Please remember that income is variable and not guaranteed.

How’s the fund performed?

Over the long term the fund has performed well and we think it will continue to do so in the future but there are no guarantees. More recently it’s lagged slightly, with performance over five years coming in just behind its benchmark. It’s worth remembering though that this is a relatively short period of time in investing.

The fund currently yields 5.3%, offering investors a monthly income in excess of that offered by the FTSE 100, which currently yields 4.7%. Yields are variable and not a reliable indicator of future income.

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

The investments in shares can boost the fund's yield and longer-term growth, but means it has the potential to be more volatile during a market setback. 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.

Invesco Monthly Income Plus - 5 year performance

Past performance is not a guide to the future. Source: Lipper IM* to 30/09/2019

Past performance is not a guide to the future. Source: Lipper IM to 30/09/2019

More about this fund, inc. charges

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