1 December 2023
Around 150 investment companies offer yields higher than the Bank of England base rate
John Moore, senior investment manager at wealth manager RBC Brewin Dolphin
“High interest rates mean returns on cash are attractive and might act as a disincentive to invest, in fact many investors have been cashing in shares to put money on deposit. However, the historical data is unequivocal: over the long-term, a balanced portfolio of equities has typically outperformed cash.
“In addition, there is the corrosive impact of inflation over time. The rising cost of goods and services means that cash loses its value – £100 ten years ago is worth a lot less today. By contrast, a diversified basket of equities has tended to maintain or increase its value in real terms.
“Then there is income. Companies can decide to increase their dividends to match or beat inflation, provided their finances allow it – and we’ve seen many management teams decide to do that in the last year or two. Investment trusts are particularly good at this, holding back cash in reserve during good years for when times are tougher.
“The key is to be patient. While equities, and investment trusts in particular, might be currently out of favour, there are plenty with long-term potential that should pay off in time. And, given the yields available on many trusts, you have the safety net of an income stream that keeps pace with base interest rates. Around 150 investment companies currently offer a yield of more than 5.25%, according to figures from the Association of Investment Companies (AIC) – but this also includes the likes of VCTs, which tend to only suitable in particular circumstances.¹”
| Investment trust | Yield |
| HICL Infrastructure | 6.29% |
| Greencoat UK Wind | 5.32% |
| TR Property | 4.91% |
| Murray Income Trust | 4.49% |
| JP Morgan Global Growth & Income | 3.45% |
Source: Bloomberg
HICL Infrastructure – 6.29% dividend yield
“HICL holds a portfolio of infrastructure investments across the UK and Europe, with a degree of exposure to North America and New Zealand too. Its assets include hospitals, government property, schools, and a host of others, providing exposure to a range of sectors. Having traded at a small premium to NAV in early 2023, the shares have fallen to a deep discount of -25%. Yet, like Greencoat UK Wind, many of the trust’s assets come with a degree of inflation protection, placing it well for the higher interest rate environment we’re likely to see in the years ahead compared to the decade or so prior to the pandemic.”
Greencoat UK Wind – 5.32% dividend yield
“Greencoat UK Wind is one of the largest independent wind farm owners in the country. Whatever the transition to net zero ends up looking like, wind energy is going to be a critical part of how we get there and, so, this trust should become more relevant over time. It also provides investors with a way of offsetting energy price rises by delivering RPI-linked increases to its dividend and it currently yields around 5.5% – just over the Bank of England’s base rate. The share price has struggled in recent months – the shares trade at a historically large discount to the trust’s net asset value (NAV), -17% – but the fundamental case for holding the trust over the long term has remains as compelling as ever and notably the trust has been buying back shares with its excess cash.”
TR Property – 4.91% dividend yield
“TR Property is a popular investment trust that offers broad exposure to a range of real estate assets. It owns property directly, but also holds shares in real estate investment trusts (REITs) in the UK and Europe and can be flexible between opportunities in either segment. Large UK property developers such as Land Securities are among its top holdings, alongside the likes of Klépierre which is the second largest shopping mall operator on the continent. Property has been one of the hardest-hit sectors of the past year, but there are signs of consolidation which has often been a catalyst for self-made recovery in time. Further, the cost of building should underpin existing well invested assets.”
Murray Income Trust – 4.49% dividend yield
“Abrdn-managed Murray Income Trust provides exposure to a range of largely UK-listed large and mid-cap companies. AstraZeneca, BP, Unilever, and Diageo are among its top holdings, which help provide high and growing income alongside capital growth. Murray is a venerable trust, dating as far back as 1923 and combines the more familiar names mentioned with some high growth potential smaller companies and the prudent use of derivatives to keep costs down. The trust is a survivor with good scale and offers a slightly higher than average yield at the moment, making now a decent entry point even if it does not quite match cash rates.”
JP Morgan Global Growth & Income – 3.45% dividend yield
“JP Morgan Global Growth & Income aims to outperform the MSCI world index by investing in 50 to 90 companies across the globe. The approach to income is that this is satisfied from total returns giving a different type of underlying holding that you might expect given the yield. Its top holdings are largely North American names – such as Amazon, Microsoft, and Coca-Cola – accounting for just over two-thirds of the portfolio, with smaller exposure to companies in France, the UK, and Japan, among others. Unlike many other investment trusts over the past year, JP Morgan Global Growth & Income’s share price has largely stuck tight to its NAV, and the shares currently trade at a small premium. So, while it may not pay a cash-equivalent yield, it has nevertheless been a good trust to hold for most economic circumstances.”
Disclaimers
The value of investments, and any income from them, can fall and you may get back less than you invested. Neither simulated nor actual past performance are reliable indicators of future performance. Performance is quoted before charges which will reduce illustrated performance. Information is provided only as an example and is not a recommendation to pursue a particular strategy. We or a connected person may have positions in or options on the securities mentioned herein or may buy, sell or offer to make a purchase or sale of such securities from time to time. For further information, please refer to our conflicts policy which is available on request or can be accessed via our website at www.brewin.co.uk. Information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.
RBC Brewin Dolphin is a trading name of Brewin Dolphin Limited. Brewin Dolphin Limited is authorised and regulated by the Financial Conduct Authority (Financial Services Register reference number 124444) and regulated in Jersey by the Financial Services Commission. Registered Office: 12 Smithfield Street, London, EC1A 9BD. Registered in England and Wales company number: 2135876. VAT number: GB 365 3456 40.
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PRESS INFORMATION
For further information, please contact:
Peter McFarlane peter.mcfarlane@framecreates.co.uk / Tel: 07412 739 093
Richard Janes richard.janes@brewin.co.uk / Tel: +44 (0) 20 3201 3343
NOTES TO EDITORS
About RBC Brewin Dolphin
RBC Brewin Dolphin is one of the UK and Ireland’s leading wealth managers and traces its origins back to 1762. With £51.8* billion in assets under management, we offer award-winning, personalised wealth management services from bespoke, discretionary investment management to retirement planning and tax-efficient investing.
Our qualified investment managers and financial planners are based in 33 offices across the UK, Jersey and Republic of Ireland. They are committed to the most exacting standards of client service, with long-term thinking and absolute focus on our clients’ needs at the core.
As part of Royal Bank of Canada (RBC), we are now able to draw on the strength of a global financial institution to continue to improve the service we provide to our clients and drive further innovation across our business.
*as at 31st October 2023.
Disclaimers
The value of investments can fall and you may get back less than you invested. RBC Brewin Dolphin is a trading name of Brewin Dolphin Limited. Brewin Dolphin Limited is authorised and regulated by the Financial Conduct Authority (Financial Services Register reference number 124444).
About RBC
Royal Bank of Canada is a global financial institution with a purpose-driven, principles-led approach to delivering leading performance. Our success comes from the 94,000+ employees who leverage their imaginations and insights to bring our vision, values and strategy to life so we can help our clients thrive and communities prosper. As Canada’s biggest bank and one of the largest in the world, based on market capitalization, we have a diversified business model with a focus on innovation and providing exceptional experiences to our more than 17 million clients in Canada, the U.S. and 27 other countries. Learn more at rbc.com.
We are proud to support a broad range of community initiatives through donations, community investments and employee volunteer activities. See how at rbc.com/community-social-impact.
¹ Source: https://www.theaic.co.uk/aic/find-compare-investment-companies?sortid=Name&desc=false