Here at FE Trustnet we have been focusing on the theme of retirement income over the past few weeks through a stream of articles looking at different ideas around the subject, as interest in this essential area of financial planning continues to grow.
Most recently Charles Cade, head of investment company research at Numis Securities, highlighted five investment trusts that he believes could form the basis, or core, of a retirement income portfolio.
We have also taken a look at multi-asset income portfolios that offer a monthly dividend and UK equity income funds that pay monthly as well as hearing from Bestinvest’s Jason Hollands on which equity fund he tips for retirees.
With the importance retirees will place on the stability of income – as well as some growth – many will look for traditional holdings in well-known ‘safer’ asset classes such as blue chip equity funds and no-frills bond funds putting an emphasis on capital preservation.
But with cash yielding a very low real rate of interest despite low inflation, valuations being reasonably high in equity markets and yields depressed, investors may feel the need to add more alternative investments.
Here Cade tips four investment trusts with reasonably high yields that offer something different.
“These vehicles have low asset volatility as they are valued based on discounted future cash flows, rather than assets,” Cade said.
Renewable energy funds
First up are two trusts that focus on investments in specific renewable energy methods: Bluefield Solar Income and Greencoat UK Wind.
Both have been recently launched, in March and July 2013 respectively, and are on high yields. Bluefield Solar Income is on 6.8 per cent yield, which is paid out quarterly, and Greencoat UK Wind is on a yield of 5.8 per cent which is paid out twice a year.
Demand has seemingly been high, with the two trusts receiving the most money in terms of fundraising in November 2014 out of any alternative income trusts in the Association of Investment Companies universe. Bluefield Solar raised £131m from investors during the month and Next Energy Solar raised £95m.
The Bluefield Solar fund invests mostly in large-scale UK-based solar energy infrastructure assets, mainly in the south-east of England
Matt Setchell, head of the renewable energy team at Octopus, which is big investor in solar energy projects, says it is high growth industry and describes the opportunity within the energy market in the UK as “significant”.
Since its launch in July 2013, the Bluefield Solar fund has returned 2.66 per cent, although part of this is down to the narrowing of its discount, now at 2.2 per cent. The return compares to an IT Infrastructure sector average of 5.65 per cent.
Performance of trust and sector since July 2013
Source: FE Analytics
Greencoat UK Wind is solely invested in income-paying wind farms both onshore and offshore, helping it to make a 12.96 per cent total return since launch. This comes down to 4.51 per cent once movements in its discount, which is currently at 1.4 per cent, are taken away. It launched at a 4 per cent premium.
Performance of trust and sector since April 2013
Source: FE Analytics
Bluefield Solar Income has a clean ongoing charges figure (OCF) of 1.62 per cent while Greencoat UK Wind has no set charges with the investment manager instead entitled to both cash and shares depending on performance.
Social infrastructure funds
Cade recommends the Amber Infrastructure fund [INPP] and the HICL Infrastructure fund as two investors in social infrastructure worth considering.
INPP, which invests in public or social infrastructure assets in the UK, Europe, Australia and North America, has a 4.6 per cent yield which is paid out twice a year.
It has returned precisely 100 per cent since its launch in 2006, but this period has also seen its premium reach 17 per cent.
Performance of trust since 2006
Source: FE Analytics
HICL Infrastructure pays out quarterly and has a current yield of 4.6 per cent. It also was launched in 2006 since which it has returned 131.82 per cent, although it has also moved to a significant premium of 15.7 per cent.
Performance of trust since 2006
Source: FE Analytics
The trust invests in solely in infrastructure projects under the Private Finance Initiative or as public private partnerships mainly in the UK, Europe, Australia and North America.
INPP and the HICL have clean OCFs of 1.46 per cent and 1.16 per cent respectively, although INPP has a performance fee which currently brings up the charge to 2.46 per cent.
