Inflation has fallen to just 1.9% - the first time CPI has fallen below the government's official target since November 2009.
Lower inflation is a mixed blessing for income seekers. More assets will now pay a yield greater than the rate of inflation, meaning a positive rate of return for investors. But the lower rate of inflation will ease the pressure on the Bank of England to raise interest rates, meaning assets linked to Base Rate – gilts and cash savings accounts – will continue to pay low rates.
Income investors have options however, more than 40 UK stocks yield a real return and many more equity and bond funds do the same.
According to Morningstar Direct, the Aberdeen High Yield Bond fund is among the top yielding funds on the market. At 8%, the globally invested fund far outflanks the rate of inflation, and analysts have given the fund a Bronze Rating.
While the fund only has a three year track record, over that time it has delivered an above-average yield, but that has come at the expense of performance. The fund significantly underperformed during the periods of heightened risk aversion in the third quarter of 2011 but recovered strongly to outperform in the more benign market conditions that dominated most of 2012 and into 2013.
The investment team has also experienced a high turnover, and that – coupled with volatile performance history means that analysts’ conviction in the fund was shaken and the team downgraded the fund from Silver to Bronze.
Morningstar analysts feel that despite these setbacks Aberdeen High Yield can continue to play an attractive role for those investors seeking a high income and who are prepared for a high degree of capital volatility.
“Whilst the team turnover was a material change and it is disappointing that three key lieutenants left in 2011 and 2012, we believe team head Brad Crombie has rebuilt a strong team,” the latest Morningstar OBSR analyst report states.
