Interactive Investor

Ian Cowie: these trusts offer bargains for the brave at start of 2024

Our columnist examines the investment prospects for a selection of high-yielding investment trusts he owns for the year ahead.

4th January 2024 09:09

by Ian Cowie from interactive investor

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New year, same old stock market worries - but, so far as this small shareholder over three decades can remember, with more violence than ever before in 2024. Conflict in the Middle East, which saw the American navy sink three pirate boats south of Suez on Sunday, now compounds Europe's worst war since 1945.

However, bad news is already reflected in the share prices of some income-yielding investment trusts, which might offer bargains for those brave enough to buy today in the hope of recovery tomorrow. It's an ill wind that blows no good and, despite all the terrible headlines, there will be winners - as well as losers - in the years ahead.

Most immediately, both the Ukraine war and the Middle East conflict threaten global supplies of oil and liquefied natural gas (LNG). That is bad for the economy in general but could be good for investment trusts that focus on the production and transportation of energy to keep us warm and in work.

This should help Ecofin Global Utilities & Infrastructure (LSE:EGL) recover from a shocking loss of 17% in 2023, with its 4.7% dividend yield - which has risen by an annual average above 4% over the last five years - becoming relatively more valuable, especially if central banks' interest rates trend lower in 2024.

Greencoat UK Wind (LSE:UKW) should also recover from a difficult year in 2023 with rising awareness of the role renewable energy can play in national self-sufficiency, rather than relying on foreign dictators to keep our lights on. UKW delivered a meagre total return of less than 5% last year but, like EGL, I expect its 6.6% dividend yield rising by 3.5% per annum will look more attractive if interest rates decline elsewhere.

Businesses engaged in the transport of food and fuel are also affected by wars in Europe and the Middle East. About 90% of all international trade travels by ship, according to the Organisation of Economic Co-operation and Development (OECD), and 15% transits via the Suez Canal.

Tufton Oceanic Assets (LSE:SHIP), a specialist in leasing marine vessels, could be another collateral beneficiary of conflicts that are forcing ships to re-route around Africa and rising freight rates. Like EGL, SHIP suffered losses last year, with a negative total return of 8%, but its 8.5% dividend yield - which has risen by a remarkable annual average of 24% over the last five years - pays shareholders to be patient.

For investors who prefer a bird in the hand to thrilling descriptions of two in the bush, BlackRock Latin American (LSE:BRLA) delivered a total return of 30% last year. This continent had been under a cloud and out of favour with followers of fashion for so long that it is now the only trust in the Association of Investment Companies (AIC) Latin America sector.

Cynics used to joke that Brazil is the country of tomorrow - and always will be - while friends questioned why I held on to BRLA. Last year’s return to form, partly as a consequence of North American importers favouring neighbouring exporters over rivals further away, demonstrates the value of long investment over short-term speculation - plus the comfort of a 4.7% dividend yield, rising by 4.8% per annum.

Similarly, running income of 7.3% from Tritax EuroBox Euro (LSE:BOXE), is beginning to attract attention as more investors distinguish between its continental warehouses, which should continue to benefit from the growth of online shopping, as opposed to the possibly terminal woes of many office blocks, post working from home, or bricks and mortar retail. Declining demand for physical shops and offices have depressed commercial property valuations in general but EBOX’s 31% discount to net asset value (NAV) looks overdone, especially if its current yield can be maintained, as that would double shareholders’ income in a decade.

Even more optimistic contrarians can hope for some resolution of the war in Ukraine.

For example, European Assets (LSE:EAT) focuses on medium and smaller companies on the Continent and managed to eke out a meagre return of less than 4% last year. But the 6.5% income it pays shareholders - albeit without a consistent track record of increases - could look a lot more attractive if peace breaks out in Ukraine. That would be a peace dividend to savour. Happy new year!

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

Ian Cowie is a shareholder in BlackRock Latin American (BRLA), Ecofin Global Utilities & Infrastructure (EGL), European Assets Trust (EAT), Greencoat UK Wind (UKW), Tritax Eurobox (EBOX) and Tufton Oceanic Assets (SHIP) as part of a globally diversified portfolio of investment trusts and other shares.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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