Income portfolios – American stock funds divided

In the U.S. market, so much attention is focused on big tech stocks that people forget that it’s possible to use U.S. stocks in an income portfolio.

And in fact, fund selectors in our database have no major problem achieving this goal.

Generally speaking, U.S. stock funds used in income portfolios have seen a dramatic shift in value, which is not surprising by far, but given the weight of the tilt toward growth in other types of portfolios, such swings are indeed dizzying.

In fact, 40 percent of funds held in income portfolios have a value style. Although this still means that US equity exposure in income portfolios has a smaller skew towards value than UK equity exposure in income portfolios, where it is 60%.

The most popular fund here is, unsurprisingly, JPM US Equity Income, making JPMorgan the most popular fund for US equity exposure in income portfolios.

Their closest rival is Fidelity, which has half the number of allocators holding its funds.

The holdings of U.S. equity funds in income portfolios are, like U.S. equity funds in other portfolios, predominantly large-cap in nature, and only one small-cap fund is included in our income database (it is held in the iShares S&P Smallcap ETF 600).

Our income database shows that for income funds within income portfolios, allocators overwhelmingly select actively managed funds, while for growth funds within income portfolios, they are much more likely to select passive funds.

That being said, passive US equity income funds held by fund pickers are much more numerous than passive UK equity income funds.

Our database only includes one UK passive equity income fund, but includes four US passive equity income funds.

We thought we’d take a look at the level of returns that profit-sharing entities are achieving in their selected U.S. equity funds, and looking solely at income-mandated funds, most of them are delivering returns of 2 to 2.49 percent with a small offering of yields in excess of 2.5 percent

Surprisingly, two U.S. equity funds – including M&G North American Dividend, which is owned by a single fund selector – offer returns of less than 1%.

It will come as no surprise that none of the growth funds used in income portfolios provided a rate of return higher than 1.49%.

But of course these funds were included to provide capital growth, not income, so did they deliver the necessary returns?