Ian Cowie: a new investment trust holding for my ISA

It’s difficult to imagine what more than nine million cubic metres of sewage might look like, even when told it would be sufficient to fill nearly 4,000 Olympic swimming pools. But it’s easy to see how keeping such an enormous amount of pollution out of the River Thames this year so far is a very good thing.

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That’s the remarkable achievement of the main asset owned by my new investment trust holding, which I hope can continue to do well by doing good. Step forward International Public Partnerships Ord (LSE:INPP), where almost 16% of its £2.8 billion total assets are invested in Tideway, the unlisted and largely underground business which built and runs London’s super sewer.

The Elizabeth Line, the Shard and the London Eye tourist attraction are more photogenic and much higher profile but this Cockney believes our new sewage infrastructure is far more important to the health of our capital. With apologies to any readers who haven’t yet finished breakfast, London’s population and the pollution we inevitably produce has more than doubled since the last major upgrade to our sewers more than 150 years ago.

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Here and now, while Thames Water - Britain’s biggest utility company in this sector - teeters on the edge of insolvency, it might seem an odd time to invest in sewers. But Tideway takes dirty water away, rather than pumping clean water into our homes, and INPP claims that it is insulated from trouble at Thames Water by long-dated contracts and regulatory guarantees.

From a purely financial point of view, that enables this investment trust to pay inflation-busting income of 7.1%, which has risen by an annual average of 3.1% over the past five years. Better still, INPP has raised its dividends every year without fail since its launch in 2006. That’s why this investor, whose priority is to pay for an enjoyable retirement, paid 121p per share, holding them in my ISA for high and rising tax-free income.

Another attraction is the fact that four of this fund’s eight directors hold shares in this trust that are worth more than the annual fees they are paid to sit on its board, according to “skin in the game” research by the stockbroker Investec. These holdings’ values each run into six or seven figures and the fund managers, Amber Infrastructure, also own stock worth more than £9 million.

Against all that, it’s only fair to ‘fess up straightaway that INPP has produced low or no capital growth in recent years. Independent statisticians Morningstar report a meagre total return of 0.3% over the past year, following a loss of -0.6% over five years and a gain of 52% over the decade.

No wonder the shares remain priced nearly -19% below their net asset value (NAV). But I am investing for the future, not the past, and buying low is often a good place to start.

Another worry for some investors is INPP’s £250 million investment in Britain’s next nuclear power plant at Sizewell C in Suffolk, announced in July. Spread over five annual tranches, this will buy a 3% stake in the new plant.

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Bear in mind that nuclear fission to make electricity - not to be confused with fusion for thermonuclear bombs - provides the only form of renewable energy that can be relied on, even when the sun don’t shine and the wind won’t blow. Following this week’s announcement of plans for American companies to invest £150 billion in Britain, much of it in data centres which will demand massive amounts of electricity, nuclear power looks like the only reliable source of low or no-carbon energy, depending on how you measure emissions.

From a selfish point of view, it’s also comforting to see that Sizewell C shareholders are guaranteed a 6% annual return by the British government during construction, which will stretch into the next decade. Once operational, INPP fund managers say they expect this investment to yield annual returns in the low teens over the 60-year life of its licence to 2099.

Here and now, this fund’s dismal capital performance to date largely reflects the fact that interest rates elsewhere have remained higher for longer than many expected, depressing the relative attractions of INPP’s dividend yield. That trend looks set to run for a while yet, with the Bank of England holding its base rate unchanged at 4% on Thursday.

Despite that, this DIY investor is less interested in trying to shoot the lights out with capital gains these days than in trying to secure inflation-busting income to pay for retirement. So, today’s double-digit discounts could prove a bargain for income-seekers in future.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in International Public Partnerships (INPP) as part of a globally diversified portfolio of investment trusts and other shares.