Investing in funds can be a great way to generate passive income. With funds, investors can pick up regular cash payments for doing absolutely nothing.
Here, I’m going to highlight two of my favourite income-focused UK funds. I’d be comfortable buying both today for passive income.
TB Evenlode Income
One of my top picks for passive income is TB Evenlode Income (Class B – Income). This is an under-the-radar fund from West Oxfordshire-based investment firm Evenlode that aims to deliver a healthy, growing dividend stream along with attractive capital returns over the long term. It mainly invests in UK companies but also has a bit of exposure to international companies.
One thing I like about this fund is that the portfolio managers take a ‘Warren Buffett-like’ approach to investing. In other words, they invest in high-quality businesses that have strong competitive advantages. This tends to provide stability. Top holdings at the end of 2021 included Diageo, Unilever, Reckitt Benckiser, and GlaxoSmithKline.
I also like the performance track record here. According to Hargreaves Landown, the fund has delivered total returns (capital gains plus dividends) of about 49% over the last five years. That’s a much higher return than the FTSE 100 has generated (about 26%). It’s worth noting that it has delivered that return with much less volatility than the FTSE 100.
Now, the yield here isn’t super high. Currently, it’s about 2.4%. There are plenty of other income funds that have higher yields than this. However, I’m not too concerned about this due to the fact that total returns have been excellent.
All things considered, I think there’s a lot to like about this fund. Fees are 0.87% per year through Hargreaves Lansdown plus platform fees.
FTF Franklin UK Rising Dividends
Another fund that I rate as a good pick for passive income is the FTF Franklin UK Rising Dividends (Class W – Income). This aims to beat the FTSE All-Share index over a three to five-year period by generating a growing level of income as well as investment growth. Top holdings currently include the likes of AstraZeneca, Unilever, Diageo, and Royal Dutch Shell.
Like Evenlode Income, this fund has delivered solid total returns over the long term. According to Hargreaves Lansdown, it has generated a total return of about 36% over the last five years. Even after fees, that’s much higher than the return from the FTSE 100. It’s achieved this outperformance with a lower level of volatility than the index.
At present, the yield here is around 2.8%. I see that as a very healthy yield in today’s low-interest-rate environment. It’s higher than I could get from a savings account. Of course, yields from funds are never guaranteed. If stocks in the portfolio reduced their dividends, investors would mostly likely receive a lower yield. And the risk level is much higher than a savings account.
Overall, however, I see a lot of potential here from a passive income perspective. Fees are 0.54% through Hargreaves Lansdown, plus platform fees.
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Edward Sheldon owns shares in Diageo, Hargreaves Lansdown, Reckitt, and Unilever. The Motley Fool UK has recommended Diageo, Hargreaves Lansdown, and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
