Can an investment trust inflation-proof your portfolio? The 36 names that saw both dividend rises and share price gains beat CPI over five years
- The Bank of England predicts inflation could hit 7.25% by April
- AIC research shows 36 trusts have beaten inflation over the past five years
- Holding real assets in infrastructure trusts is a good way to beat inflation
Inflation officially hit 5.4 per cent in December – its highest point in 30 years – and the Bank of England is forecasting it could hit 7.25 per cent in April, leaving investors understandably concerned.
At the same time large chunks of their share portfolios, particularly any more growth-oriented stocks, may have taken a hit in recent weeks.
This highlights how what’s done well in the past may not do well in the future, but investment trusts with a reputation for beating inflation may still be worth a look.
Research from the Association of Investment Companies (AIC) shows that 36 investment trusts have grown both their dividends and their share price by more than the average Consumer Prices Index inflation rate over the past five years.
Investment companies can put away up to 15 per cent of their income to supplement payouts and continued to pay dividends during the pandemic
The obvious issue for those staring down the barrel of 5 per cent-plus inflation is that the average annualised rate of CPI inflation over the past five years has only been 2.5 per cent.
Nonetheless, the AIC said that these trusts both increased their dividends on average over the last five years by more than CPI, as well as delivering an annualised share price return excluding dividends of more than 2.5 per cent.
None of the companies has cut its annual dividends over this time and all pay a yield of at least 2 per cent.
Some have racked up serious total returns over the period, with Standard Life Private Equity returning 132 per cent, Ecofin Global Opportunities and Tritax Big Box Reit 114 per cent and BMO Private Equity 109 per cent.
These are speciality trusts and the greatest total returns from more standard equity investment trusts was Fidelity European’s 98 per cent return and JP Morgan Global Growth & Income’s 96 per cent return.
‘Investors are understandably concerned about rising inflation and many investment companies are focused on growing shareholders’ income and capital in real terms,’ said the AIC’s communications director Annabel Brodie-Smith.
‘It’s encouraging to see that 36 investment companies, from a wide range of sectors, have beaten inflation over the past five years, both in terms of their annual dividend payments and their share price returns.’
The 36-strong list is a diverse bunch, ranging from UK small company investments, to emerging markets trusts and those invested in wind power and non-bank lending.
|Name||Sector||Net Dividend Yield (%)||Dividend Growth (5 year)||Raw Price Return (Annualized)||5 year share price total return (%)|
|Standard Life Private Equity||Private Equity||2.42||20.29||13.82||132.10|
|Ecofin Global Utilities and Infrastructure||Infrastructure Securities||3.61||32.77||9.10||114.14|
|Tritax Big Box REIT||Property – UK Logistics||2.64||2.52||8.24||113.94|
|BMO Private Equity||Private Equity||3.31||7.17||10.68||107.53|
|ICG Enterprise||Private Equity||2.20||16.89||13.51||99.96|
|VPC Specialty Lending Investments||Debt – Direct Lending||8.44||10.80||4.75||99.79|
|TR Property||Property Securities||2.93||11.20||7.85||96.83|
|JPMorgan Global Growth & Income||Global Equity Income||3.67||32.68||8.68||96.30|
|Apax Global Alpha||Private Equity||4.81||22.43||10.22||91.58|
|Henderson Smaller Companies||UK Smaller Companies||2.09||9.63||9.34||90.36|
|Law Debenture Corporation||UK Equity Income||3.37||11.16||5.73||88.45|
|JPMorgan Asia Growth & Income||Asia Pacific Equity Income||4.51||45.11||5.97||88.23|
|Montanaro UK Smaller Companies||UK Smaller Companies||3.91||22.51||4.58||78.13|
|Invesco Asia||Asia Pacific Equity Income||4.31||32.84||7.25||71.79|
|Merchants||UK Equity Income||4.69||2.53||3.43||69.20|
|JPMorgan Russian Securities||Country Specialist||5.10||20.11||4.50||65.18|
|Mercantile||UK All Companies||2.68||9.28||7.16||63.86|
|Invesco Perpetual UK Smaller Companies||UK Smaller Companies||4.00||6.20||7.49||63.78|
|Polar Capital Global Financials||Financials||2.48||4.39||5.24||61.70|
|Templeton Emerging Markets||Global Emerging Markets||3.33||18.16||6.11||59.21|
|JPMorgan MidCap||UK All Companies||2.40||7.03||5.62||53.49|
|Greencoat UK Wind||Renewable Energy Infrastructure||5.38||2.52||4.24||53.38|
|Aberdeen Standard Asia Focus||Asia Pacific Smaller Companies||2.34||7.39||6.14||52.20|
|Henderson European Focus||Europe||2.09||4.63||7.20||52.14|
|Fidelity Special Values||UK All Companies||2.18||12.51||5.11||51.53|
|Invesco Select Global Equity Income||Global Equity Income||2.92||3.42||5.77||50.53|
|BlackRock Sustainable American Income||North America||4.01||11.22||4.96||49.74|
|Aberforth Smaller Companies||UK Smaller Companies||2.41||5.18||4.24||46.61|
|Diverse Income Trust||UK Equity Income||3.33||6.02||4.47||46.01|
|Momentum Multi-Asset Value||Flexible Investment||3.58||2.53||3.24||41.54|
|Henderson International Income||Global Equity Income||4.14||6.26||4.35||40.44|
|Schroder Oriental Income||Asia Pacific Equity Income||3.95||4.32||3.13||39.22|
|North American Income||North America||3.61||8.67||3.74||37.04|
|Source: AIC using Morningstar (as at 02/02/22). AIC members only.|
Past returns don’t mean future winners…
This is obviously a backward looking list and investors should considerthat favourable conditions for such investments in the past may no longer be in place for them now.
Mick Gilligan, partner at Killick & Co, said there are several trusts outside of the AIC’s list ‘that should provide good insulation to their capital values in the event of persistently high inflation.
‘One of the best ways to protect against inflation is to hold real assets – i.e., physical assets that tend to maintain their real value. Several real assets tend to be illiquid (e.g., infrastructure). Investment trusts have a structural advantage over open-ended funds in their ability to hold these assets long term without having to worry about capital outflows.’
A number of infrastructure trusts disclose a so-called ‘inflation data’, which is an estimate of the sensitivity of their NAV to the inflation.
HICL Infrastructure estimates its inflation delta to be 0.80 which means that if inflation is one per cent higher than HICL’s base assumption, the expected return from the portfolio would increase by 0.8 per cent.
International Public Partners’ number comes in at 0.78.
Gilligan added: ‘Capital Gearing and Personal Assets also tend to act as quite good inflation hedges. It is clear from the annual reports of these trusts that inflation protection is a high priority for the board and the manager. These trusts have exposure to a wide range of assets including inflation linked bonds, real estate and stocks with strong pricing power.’