Top seven tips for balanced income in 2014

Income investors are increasingly turning to funds due to low rates of interest on deposit accounts, with many offering higher yields than the best rates on savings accounts.

However, starting yields on funds can differ according to the type of investments they hold, and these investments will influence future returns on the funds.

Our expert panel have split their focused fund and investment trust tips for 2014 into three categories of income funds; balanced income, growing income and immediate income. The panel is introduced in the immediate income article.Balanced income funds are typically made up of a mixture of bonds and equities. Bond funds are typically less volatile than share-based funds but have less growth potential. By diversifying your portfolio you are increasing your exposure to both growth potential and stability.

For more in the series, read: Top seven tips for solid growth investing, Seven top tips to invest for higher-risk growth and Top tips to invest speculatively for growth.

JPMorgan Multi-Asset Income

The objective of this fund is to provide an attractive income-driven total return, through a portfolio of different asset classes.

Gavin Haynes says the JPMorgan Multi-Asset Income fund's approach is based on a successful longer-running strategy employed in the US. He says: "The managers adopt a formal framework of 35% in global equities, 35% in global high-yield bonds and the remainder in a range of other assets, including emerging market debt, convertible bonds and real estate investment trusts. Income generation is key and can be distributed quarterly or reinvested."

Schroder Income Maximiser

"There are no equity and bond income funds that we currently favour," reveals Mick Gilligan. However, for those seeking an equity income fund with a less volatile overall return, he thinks Schroder Income Maximiser is a good choice. The fund is made up of UK equities and overlayed with a covered call option strategy.

"The equity portfolio is biased towards companies that have fallen out of favour, primarily because of declining operating margins, but where the portfolio managers expect to see margin normalisation,' he says. 'The covered call strategy means some potential gains are exchanged for a fee, helping to enhance the overall yield."

F&C MM Navigator Distribution

We forgive Rob Burdett for choosing his own company's flagship multi-manager fund, F&C MM Navigator Distribution, as it is one of only three funds in the IMA mixed investment 40-60% shares sector to have returned more than 5% a year for five years in a row.

Burdett says: "It does so from a portfolio of more than 30 income-generating funds spanning equities, bonds and property, and dipping into areas such as infrastructure. In selecting a fund holding, we look for a natural dividend yield and the chance to preserve capital on a five-year- plus horizon."

TB Wise Income

Similarly, we don't blame Tony Yarrow for choosing TB Wise Income, which he runs. It is a global multi-asset fund, has consistently paid a high yield, and is highly diversified and "low risk", according to Yarrow.

It holds funds, investment trusts, shares and fixed-income securities. "It was recently invested around 60% in equities and 20% in property-related holdings, with the remainder in fixed interest and cash," says Yarrow.

One recent purchase was a specialist Canadian investment trust, Middlefield Canadian Income.

Law Debenture Corporation

Jean Matterson likes Law Debenture Corporation, which combines an investment portfolio with a successful fiduciary business. 70% of the portfolio is invested in an eclectic mix of UK companies chosen by James Henderson.

The balance is in overseas regions expected to outperform the UK, via funds managed by highly regarded managers. Income from the fiduciary business supplements dividends from the equity portfolio, enabling Law Debenture to offer one of the highest yields in the global growth sector.

"The trust trades at a substantial premium to its stated net asset value, but this takes no account of the value of the fiduciary business," Matterson says.

JPMorgan Global Convertibles Income

Andrew McHattie says JPMorgan Global Convertibles Income "slots between fixed income and equities", aiming for a yield of 4.5%. It has the potential to achieve a healthy degree of participation when equity markets rise, but should be less vulnerable to equity downside risks.

"It's likely to appeal to cautiously optimistic investors with its global spread and target of producing dependable, diversified income without sacrificing growth," he says.

3i Infrastructure

3i Infrastructure is Peter Hewitt's balanced income choice because it targets a 10% annual total return, of which half should be in the form of dividends. It differs from other infrastructure trusts in that it invests in infrastructure companies, rather than PFI concessions that eventually expire worthless.

Its portfolio is diversified by sector and geography. Dividend growth has averaged 5% over the past five years.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.