The eroding effect of inflation should spur every investor to look for alternatives to make their money work for for them, yet many investors still turn to traditional fixed income or equity funds to do the job.
With this in mind, FE Trustnet looks at four niche funds that can beat inflation over the long-term.
Freehold Income Authorised
As FE head of Research Rob Gleeson (pictured) recently told FE Trustnet, a growing income stream is far more important for beating inflation than a high headline yield.
“Low yielding funds with high growth can turn into a very good income fund because it can grow every year,” Gleeson said. Few funds can demonstrate as strong an example of this principle as the Freehold Income Authorised fund – which has a 19 year track record of inflation-beating annual returns.
Performance of fund vs index over 16 yrs
Source: FE Analytics
This chart contains information from the start of FE data.
The £158.4m fund owns 64,000 residential ground rents around the UK and targets an annual 4.25 per cent income yield in addition to capital growth.
The fund requires a minimum investment of £5,000 and carries a total expense ratio (TER) of 1.45 per cent.
First State Global Listed Infrastructure
First State is well-known for its emerging markets and Asia Pacific prowess, but the infrastructure funds have also proven a favourite among investment professionals.Charles Stanley’s Ben Yearsley (pictured) recently tipped the four crown rated First State Global Listed Infrastructure fund as a way to beat inflation over the long-term.
The £754m fund is yielding 3 per cent and has managed a steady climb against inflation – apart from a dip in early 2009 – since launch in October 2007. The fund, which invests in what Yearsley calls the “backbone” of countries - roads, airports, mobile phone masts and water distribution - has made 54.07 per cent since launch, well ahead of the IMA Global sector which gained 28.24 per cent.
Performance of trust vs sector since launch
Source: FE Analytics
It has lagged the UBS Global Infrastructure & Utilities 50-50 index since the start of data in November 2011.
The fund, managed by Peter Meany and Andrew Greenup, requires a minimum investment of £1,000 and carries ongoing charges of 1.62 per cent.
Healthcare funds have taken off this year – with the traditionally defensive sector leading the global rally over the past 12 months.
The little-known MedicX IT is riding that rally, aiming to achieve rising rental income and capital growth through investment in healthcare properties.
The trust has a high dividend yield of 7.1 per cent – making it especially attractive for investors wanting to boost their income well above inflation.
However, investors should be aware it is geared - or leveraged - at 35 per cent.
Still, the trust’s outperformance speaks for itself.
Over the past one, three and five years, the trust has maintained consistently positive returns well ahead of the IT Property Specialist sector.
In fact, the trust only sustained losses in 2007 and 2009, protecting better than the average trust in the crisis of 2008 and continuing to deliver impressive returns in the rising markets of 2012 and 2013.
Since launch in November 2006, the trust has made 21.67 per cent, though not without a degree of volatility.
Performance of trust since launch
Source: FE Analytics
The trust is trading on a wide premium of 28.5 per cent.
It is worth noting that MedicX has comparatively high ongoing charges of 2.86 per cent, including a performance fee.
Yielding 11.56 per cent, the Juridica Investments IT is another strong income play for the inflation-leary investor.
The trust, which invests in litigation, is one of a limited number of ways investors can gain access to this niche sector.
Unlike the MedicX IT, it is trading on a healthy discount of 23.1 per cent – meaning investors can access the underlying assets in the portfolio for less than their book value.
While the trust took a nasty hit in 2010 and 2010 – losing 12.3 per cent and 15.19 per cent respectively – it has come back strongly in 2012 and 2013 and has gained 33.82 per cent since launch in December 2007.
Year-on-year performance of trust
| Name | 2013(%) | 2012(%) | 2011(%) | 2010(%) | 2009(%) | 2008(%) |
| Juridica Investments IT | 24.31 | 23.27 | -15.19 | -12.3 | 16.33 | 0.93 |
| FTSE All Share | 18.47 | 12.3 | -3.46 | 14.51 | 30.12 | -29.93 |
Source: FE Analytics
Due to the trust’s niche nature, it does carry a hefty ongoing charge of 3.26 per cent, making it one of the most expensive investment trusts in the UK market.
