Seven tips for growing income in 2014

With low rates of interest and most offering higher yields than savings accounts, many income-hungry investors are finding income-oriented funds and trusts increasingly attractive.

Investors who want their income to grow should invest in funds holding equities. They are more volatile than a fund derived from bonds, yet has a larger growth potential.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.Another option available for the income investor is an investment trust. These managers can achieve a more reliable dividend stream than open-ended funds by putting some revenue aside during the good times to bolster dividends as times get tighter.Also, investment trusts and companies can generate a high and reliable yield by investing in a glowing range of relaively illiquid asset classes.

Our panel's choices are split into three categories, immediate income, which also includes an introduction to the experts, balanced income and growing income.

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.

Artemis Global Income

"With seven times as many dividend-paying stocks outside the UK, income seekers need to broaden their investment horizons," says Brian Dennehy, "Artemis Global Income uses its full global remit to exploit income opportunities."

Holdings are split between North America (26%), the eurozone (25%) and the UK (10%), with the remainder invested in emerging markets and Asia.

Rathbone Income

The equity Rathbone Income fund invests in between 50 and 70 primarily UK companies that provide above-average and increasing income. Manager Carl Stick looks for businesses where the management is committed to increasing dividends without compromising capital growth.

"The fund has a strong record of rising annual dividend distributions, helping investors grow income above inflation," says Gavin Haynes.

It invests in all areas of the UK stockmarket. "Around half of the portfolio is invested in FTSE 100 (UKX) stocks, and the remainder in medium and smaller companies that Stick believes are under-researched, providing scope to add value.'

Artemis Income

John Husselbee prefers a tried and tested approach rather than new funds and processes. Adrian Frost and Adrian Gosden, joint managers of Artemis Income, have many years of experience in the UK equity income arena.

"Fund investors shouldn't waste time analysing short-term returns but instead concentrate on five-, seven- and 10-year performance in the sector," advises Husselbee.

"You can then clearly identify and separate skill from luck."

He adds: "There are other smaller, more nimble funds, but this is a core fund."

Fidelity Global Dividend

Mick Gilligan points out that growth stocks have outperformed value stocks in recent years. "However, value stocks tend to outperform over the very long term," he says. "Fidelity Global Dividend provides access to a portfolio of around 50 global stocks with strong value. The fund has a 3.4% historic yield, which I would expect to grow over time."

Portfolio manager Dan Roberts has a contrarian style, says Gilligan. "He aims to buy shares from pessimists and sell them to optimists - that is, to pick up stocks when they are out of favour and trading cheap, and then sell them again when things have normalised."

Finsbury Growth & Income

John Newlands is drawn to the argument that whatever economic vagaries lie ahead, global brands with massive daily sales of boring household items such as soap or fizzy drinks offer a relatively safe haven for more risk-averse investors.

On that basis he makes Finsbury Growth & Income trust his growing income choice, as its manager Nick Train is highly skilled at compiling portfolios of such holdings. Newlands believes it is a sound holding for those wanting to ride out the ups and downs of the economic cycle.

Murray International

Peter Hewitt opts for Murray International, which offers an above-average yield for a globally diversified trust and has grown its dividend by an average of 12.6% a year over the past five years.

Manager Bruce Stout has a bias towards fast-growing parts of the world, such as Asia Pacific and emerging markets. This held back returns over the past year, but its five- and 10-year figures are outstanding.

Diverse Income Trust

Jean Matterson picks Diverse Income Trust. Manager Gervais Williams is a respected UK smaller-company manager who has been thriving since moving from now-defunct Gartmore to Miton Group. He favours companies with growing dividends, and expects this to feed into improved share prices.

The trust has more than 100 holdings, with a strong bias towards the medium to smaller end of the quoted market.

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.