I’d argue that 2020 has shown the value of investment trusts. All the more so for investors who value dividends as part of their total returns. This is because while many companies cut or suspended their dividends throughout the year, investment trusts had less need to do so. This is because, although they trade like shares on the stock market (incidentally a big advantage over open ended rivals), they can also keep reserves. This is the key point. It makes their dividends more consistent and reliable.
Indeed, the Association of Investment Companies keeps a list of “dividend heroes,” these are the investment companies that have consistently increased their dividends for 20 or more years in a row and there’s quite a lot of them.
So, it’s hard to argue I think against investment trusts as part of a portfolio and I intend to include more going forwards to add to Merchants Trust, Murray International and Scottish Investment Trust, all of which I already hold shares in.
No 1 – the green trust
JLEN (LON:JLEN) is my top pick when it comes to investing in renewable energy. It has 32 assets, mainly in the UK but also with three assets in Spain and France. It’s portfolio includes onshore wind, PV solar, waste and wastewater processing plants and anaerobic digestion plants.
The trust describes its investment proposition as thus:
- JLEN aims to pay investors a sustainable, progressive dividend per share paid quarterly, and to preserve the capital value of its portfolio
- JLEN provides investors with exposure to a diversified portfolio of environmental infrastructure projects generating predictable, wholly or partially inflation linked cash-flows
- Investment in renewable energy projects is supported by a global commitment to support low-carbon electricity targets
- Potential upside to asset value comes from active management of the projects and the ability to invest in further environmental infrastructure projects at attractive prices
The half year report came out just back in November. It showed that the portfolio value had risen 2.9%, while the dividend was up 1.5%.
The trust continues to acquire operationally proven assets so should be able to grow. It’s two most recent acquisitions were an anaerobic digestion plant as well as two hydroelectric assets operating in Yorkshire and Cornwall. The two hydropower assets were acquired for £4.7m.
All in all, despite the premium, JLEN has pedigree and a proven record in the renewables space so isn’t at risk of greenwashing. It trades at a premium, which is understandable given the surge in interest in renewables in recent times. According to Hargreaves Lansdown that premium stands at just over 20% at the time of writing. The dividend yield is 5.8%, although of course it’ll fluctuate as well over time depending on the share price and the level of dividend payment.
There’s also the Gresham House Energy Storage Fund, which is a slightly different proposition for any investor interested in the progress of renewables and energy production.
No 2 – the emerging markets trust
JP Morgan’s Global Emerging Markets Income Trust (LON:JEMI) is a solid choice when it comes to an emerging market investment trust.
The top holdings are all technology-focused companies, which is a good place to be. Taiwan Semiconductor accounts for nearly 9% (8.7%) of the portfolio. It’s followed by Samsung Electronics, Tata Consultancy Services and Vanguard International Semiconductor.
Overall technology makes up nearly a third (30.2%) of the trust. Financials are close behind on 30.1% and then consumer staples are 16.5%.
In terms of regional breakdown, China is 33.1%, followed by Taiwan at 21.5% with the next biggest country being Russia at 9.3%. Other countries where it invests in descending order of total amount of assets invested there are: South Korea, India, Mexico, South Africa and Indonesia.
The trust trades on a small discount to its net asset value. The discount is around 2.3%. The yield is 3.5% at the time of writing.
Or if you prefer trackers here are some examples
When it comes to clean energy, the iShares Global Clean Energy UCITS ETF could be a top pick. As could the smaller (and even cheaper) L&G Clean Energy UCITS ETF. On the emerging markets side of things options include the iShares MSCI EM UCITS ETF and UBS ETF (LU) MSCI Emerging Markets UCITS ETF. A useful website on ETFs can be found here.
Overall then I’m increasingly a fan of investment trusts. They are resilient and often outperform funds. If you want to outsource some stock picking to a professional then I think doing so in areas where it’s harder to pick winners – such as when it comes to overseas investments or in rapidly involving markets then it’s a price worth paying. I think investment trusts can add steady growth and income to a portfolio.
These are some of the ones I’ll potentially look to add in 2021. Although as always with investments trusts you’ll want to watch out for the premium or discount you pay versus the net asset value and how far it is from the historic average. Unfortunately for some ‘hot’ sectors like renewable energy premiums are running quite high so you need to be confident to pick the right one, at the right time, and also believe other investors will keep piling in.
For me then that makes emerging markets the more obvious choice in the short term, at least from a value perspective.
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