/ INCOME /
UNKNOWN
TREASURES
Investors currently have to pay over the odds for income – but only if
they refuse to look away from the traditional sources, writes Phil Scott
P
lucky investors
looking to up their
income could do well
to look beyond the
traditional equity
plays and into more esoteric
corners of the investment trust
universe, where many funds are
currently offering bumper yields.
The listed, closed-ended space
is well regarded for its incomeproducing capabilities, with
numerous portfolios having
managed to consistently increase
their dividend payouts for
multiple decades.
But while the arena may offer
an average yield of circa 3.6 per
cent, the ever-rising demand for
more income has meant that many
vehicles’ price tags have been on
the rise, especially those occupying
the equity income sectors.
MI Hawksmoor Distribution’s
co-manager Ben Conway says:
“When you look at mainstream
asset classes, they do not
offer much in the way of
cheap yield. But I can get
income from a whole host of
investment trusts across a very
wide range of asset classes.”
trustnetdirect.com
However, the market volatility
that characterised 2016 even
before the UK voted to leave
the EU has helped to throw up
some fresh bargains. Just days
after the referendum result was
announced, the average discount
had moved out to almost 10 per
cent, the widest for four years,
according to the Association of
Investment Companies. While
this has narrowed since then, there
is every likelihood it will move
out again in the near future as the
UK continues to feel the Brexit
aftershocks.
One reason why incomeseekers should specifically take a
look at investment trusts is that
they have the ability to smooth
out dividend payments. Unlike
open-ended funds, trusts have the
ability to hold back up to 15 per
cent of the dividends generated
by the underlying portfolio. This
can then be used to supplement
dividends in future years, should
the income from the underlying
portfolio fall as a result of cuts
during tougher periods.
That is not the only advantage
of the investment trust structure,
however. These products also have
the ability to borrow money to
leverage returns and the yield. In
a falling market, though, this will
increase the losses, so this is only
suitable if you can accept a higher
level of risk.
Here are a number of income
plays to consider that may not be
on your radar.
COMMERCIAL PROPERTY
The popularity of bricks and
mortar over recent years has meant
that many property trusts have
been trading at stubbornly high
premiums. However, 2016 – and
the EU referendum in particular –
has managed to take some steam
out of this area of the market, with
the Property Direct UK sector now
trading on a far deeper average
discount of 14.3 per cent.
In the wake of the strong capital
gains enjoyed by property over
recent years, the general consensus
is now that rental growth will be
the biggest contributor to future
total returns. Jason Hollands,
managing director at Tilney
Bestinvest, says: “Property has had
a strong run and there has been
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