By Kyle Caldwell from interactive investor.
Just six investment trusts pay investors on a monthly basis. New research reveals which ones.
It has never been easier for do-it-yourself investors to assemble an income portfolio, as over the past couple of years both open-ended funds and investment trusts have moved to pay income more frequently than they opted to in the past.
Demand for income has been the big driver, against the decade-long low interest rate backdrop, which has resulted in savings rates being cut to the bone. While the base rate rose last August from 0.5 per cent to 0.75 per cent, the path towards interest rates normalising back up towards the 3 per cent to 5 per cent range will be a long, slow one for policymakers to climb, so the hunt for income is set to continue.
How to create a £10,000 income: three Rated Fund portfolios
In the Money Observer April edition, our cover story outlined various tips and tricks to help investors arrange their investments to generate a steady monthly payout. For those either approaching or in retirement, we explained the most sensible way to achieve a finely balanced portfolio is to have mix of both growth and income-producing investments.
However, the hassle-free route is to focus solely on funds paying a monthly income. The downside is that the choice is narrow, as it is far more common for funds or investment trusts to pay quarterly or bi-annually. In the case of investment trusts, according to research by the Association of Investment Companies, just six pay on a monthly basis.
The trusts that pay monthly are: Ediston Property (LSE:EPIC), F&C Commercial Property (LSE:FCPT), Fair Oaks Income 2017 (LSE:FAIR), SQN Asset Finance Income (LSE:SQN), SQN Secured Income (LSE:SSIF) and TwentyFour Select Monthly Income (LSE:SMIF).
They are a mixed bag, with the first two trusts listed above investing in commercial property. Ediston Property, which is structured as a real estate investment trust, has the much higher yield, currently 5.4 per cent, but its portfolio is punchier.
It has three-quarters of its money in the retail warehousing sector, with its fund manager Calum Bruce arguing the perception that retail is in decline is being overstated. This, he says, has created plenty of value opportunities in areas of retail that are evolving. One of the areas he is backing is retail parks that are located outside London.
F&C Commercial Property, a Money Observer Rated Fund, on the other hand, has an stricter investment policy, which puts various limits on the way the portfolio is managed that help to maintain diversification and reduce risk.
For example, no single property can account for more than 15 per cent of gross assets at the time of acquisition and the largest five properties must be no more than 40 per cent of gross assets. There are also limits on the proportion of the portfolio in different sectors such as offices, retail and industrial property. Its yield stands at 4.8 per cent.
At the higher end of the risk spectrum is TwentyFour Select Monthly Income, as it has the vast majority of its assets in sub-investment grade bonds. As a result, its yield is a chunky 7.2 per cent. It is run by a six-strong team at TwentyFour Asset Management and has been a Money Observer Rated Fund since 2017.
The remaining three investment trusts that pay dividends each month are also highly specialist: Fair Oaks Income 2017 invests in collateralised debt, while SQN Asset Finance Income and SQN Secured Income lease and loan assets to small- and medium-sized businesses.
This article was originally published in our sister magazine Money Observer.
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