Interactive Investor

The income funds and trusts investors are turning to

15th June 2022 12:20

Kyle Caldwell from interactive investor

Over the past three months there’s been an increase in demand for dividend strategies. We name the funds and trusts becoming more popular. 

Investors are on the hunt for income again in response to a volatile backdrop for stock markets and the dividend recovery that’s been taking place.

Over the past three months there’s been an increase among interactive investor customers looking for dividend strategies compared to the prior three months.

Our analysis of investor demand for funds and investment trusts over two three-month periods – 1 December 2021 to 28 February 2022 and 1 March 2022 to 31 May 2022 – found that there were five new entries to the top 30 most-bought investment trusts over the most recent three-month period. For funds, there were three new members to the top 30 with an income focus.  

The five trusts with respective yields of 6.7%, 5%, 4.4%, 3.8% and 3.6% are: NextEnergy Solar Fund (LSE:NESF), Renewables Infrastructure Group (LSE:TRIG), Murray International (LSE:MYI), Law Debenture Corporation (LSE:LWDB) and Tritax Big Box REIT (LSE:BBOX).

The four funds paying income that are climbing up the rankings are: FTF ClearBridge Global Infrastructure Income (yielding 3.9%); Fidelity Global Dividend (3.5%); BlackRock Natural Resources Growth & Income (2.9%); and JPM Natural Resources (2.7%).

There are a couple of trends at play. The first is that in the case of the two natural resources funds, investors may predominately be buying to capture one of the few money-making areas of the stock market in 2022, with income perhaps more of a secondary consideration. Year-to-date BlackRock Natural Resources Growth & Income and JPM Natural Resources have returned 28.8% and 31.8%.

The natural resources sector, a direct beneficiary of the rising oil price, also has inflation-protection qualities, which have become more attractive in the current climate, with UK inflation hitting 9% in April - the highest level in four decades.

Infrastructure also offers protection against rising prices, due to its exposure to government-backed and inflation-adjusted income.

This has fuelled increased demand for FTF ClearBridge Global Infrastructure Income and The Renewables Infrastructure Company.

FTF ClearBridge Global Infrastructure Income, which is a member of interactive investor’s Super 60 list, told our Funds Fan podcast last September that the fund has more than 90% direct and indirect exposure to inflation-linked assets. The fund invests in a diverse basket of global listed infrastructure assets in various sub-sectors such as water, utilities, gas and electricity.

As well as having inflation qualities, The Renewables Infrastructure Company has been benefiting from higher power prices. Sitting in the same sector and profiting from the same trend is NextEnergy Solar Fund. Over the past year, the duo have delivered returns of 11% and 21.3%. Renewables Infrastructure Company, which has a longer track record, is trading on a high premium of 15.2% versus a small discount of 1.4% for NextEnergy Solar Fund.

The other alternative asset trust that has seen higher demand of late is Tritax Big Box REIT. The trust, which specialises in UK logistic assets, has seen its share price dip since late April on the back of Amazon (NASDAQ:AMZN) saying that it was scaling back investment in its delivery network. Investors, however, have been attempting to buy low in the belief the warehouse success story of the pandemic will continue, shrugging off the prospect of slower growth for the sector, which would negatively impact rents and therefore income.

The other three income strategies rising in popularity are plain vanilla: Murray International, Fidelity Global Dividend and Law Debenture. The first two trusts invest in global dividend-paying shares, while the latter invests in UK income stocks.

Both Murray International and Fidelity Global Dividend are members of interactive investor’s Super 60 list. Murray International has a bias towards Asia and the emerging markets. Fidelity Global Dividend, which aims to deliver good long-term total returns with lower volatility than stock markets, mainly sticks to developed markets.

Over the past three months, topping the list for income strategies among investment trusts is City of London (LSE:CTY). The trust, which has increased its dividend for 55 consecutive years, was the third most-bought trust from the start of March to the end of May. In the prior three months, it was the fourth most-bought trust. It is also in the Super 60.

For funds, passively managed Vanguard FTSE UK Equity Income tops the income popularity stakes. It yields 5.1%. Over the past three months, it was the 11th most-bought fund. In the three months prior, it was 14th in the rankings.

Fund investors buying an income fund need to be careful about their share class choice, as our infographic below explains.

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.