DIY Investor Magazine
/
2015 Issue
19
We live, as in the words of the Chinese curse, in
interesting times. As any saver knows, interest rates
are so absurdly low that some people are questioning
whether cash ISAs are worth the bother. Low interest
rates are holding back returns on annuities as well,
so much so that the majority of retirees are expected
to embrace their new freedom to do something more
creative with their pension pot. But what are the
alternatives? We think savers and retirees should
consider the attractions of investment companies
First a plea. Whatever you are thinking of doing with
your money, don’t gamble it on one or a handful of
superficially attractive investments. Whether we are
talking about your hard earned savings or the pension
you have spent the best years of your life accumulating,
you cannot afford to risk losing all or most of your
money if that cast iron bet turns to rust. The key to
avoiding this is diversification – spreading your eggs
across a number of baskets.
INVESTMENT COMPANIES
If you haven’t got an enormous pool of money to
play with, then buying a global investment company
(sometimes called ‘investment trusts’) will achieve this
for you. Funds like Witan, Scottish Mortgage, Foreign &
Colonial and RIT Capital are global growth trusts that
invest in many different companies all around the world.
They aren’t the highest dividend payers, they pay
rates of between 1% and 2% of their share price at the
moment, but with capital returns they would have made
you between 9% and over 16% a year on average for
the last ten years.
There are global income funds too. The likes of Murray
International, Scottish American and BlackRock Income
Strategies all have yields over 4% and they have
returned between 7% and more than 12% a year over
the last ten years. You might have noticed that these
returns are lower than those of the growth funds. It is
often true that you have to give up some capital growth
to get a higher income.
IT’S ALL A MATTER TRUST
James Carthew
of Marten and Co says that the diversification found in well managed investment
companies can deliver the right balance of income and growth.
Funds like these, which invest mostly in shares of listed
companies, can be attractive because the income they
generate (from the dividends that the companies pay
them) can grow in-line with or ahead of inflation.
The Association of Investment Companies has
published a list of 16 investment trusts that have grown
their dividend every year for the last 20 years and a
further 18 that have a record of at least ten years of
dividend growth.
These are led by City of London, a fund investing in UK
companies, which has grown its dividend every year for
the last 48 years and still sits on a yield of 3.7% today.
REGIONS
If you have enough money to spread your investment
across a number of funds, then you can afford to be a
bit more inventive. Over the past few years a number of
regional funds have been launched that try to generate
income from investments in places like Asia, North
America and Latin America.
There are funds that specialise in property,
infrastructure and renewable energy – many of which
yield between 4% and 7%. There are funds that lease
out planes, ships and all manner of equipment that
yield more than 7%. Finally, there is also now a sizeable
selection of funds that invest in various forms of debt
these often yield 5% or 6% but some yield as much as
11%.
