The current financial climate makes the search for income more important than ever. With interest rates at record lows and inflation climbing, it is difficult to find a home for your money where it will tread water, never mind increase in value.
There’s also political uncertainty and the expectation that the stock market will remain volatile while the UK negotiates its exit from the EU.
In this climate, income-producing investments, which give regular pay-outs in the form of dividends, are particularly attractive to investors.
One of the most popular ways to gain income is by buying investment trusts. This form of investment has two main advantages for the income-seeker.
The first is that some investment trusts can retain some of the income they generate in the good years so that they can bolster dividend payments in the bad. This approach has led to many investment trusts increasing their dividend payments every year for many decades, and some for more than 50 years. 
The second is that they can invest in a wide variety of sectors and geographical areas, and give investors the opportunity to diversify into asset classes such as commercial property. Some of these sectors pay high dividends and so are popular with those seeking an income.
Benefits of closed-ended investments
Open-ended funds issue and cancel shares based on demand from investors,but closed-end funds have only a finite number of shares in issue that can be bought and sold on the stock market.
Open-ended funds that invest in illiquid sectors ‒ those that cannot easily be bought and sold such as commercial property ‒ can run into trouble when the market is volatile, such as after the EU referendum.
Political uncertainty meant that large numbers of investors wanted to cash in their investments, and this led to some open-ended property funds seeing trading suspended, and customers being unable to get their money for a few months. They later reopened.
However, it’s worth remembering that the share price can fluctuate depending on investor sentiment.
BMO’s investment trusts
More investment trusts than ever now pay their dividends quarterly, according to the Association of Investment Companies , reflecting investors’ hunger for income.
Investment trusts allow you to invest in many types of asset, depending on your interests and risk appetite. Some trusts are more focused on providing an income and others on growth.
“At BMO we have a wide range of investment trusts to suit varying investment needs,” says Marrack Tonkin, head of investment trusts at BMO.
He continues: “It is particularly important for income-hungry investors to create a diversified portfolio of funds investing in different types of assets. Three trusts that may attract income-seekers are the BMO Managed Portfolio Trust, BMO UK High Income Trust and BMO Commercial Property Trust.”
The Managed Portfolio Trust invests in a range of other trusts, which gives investors a broad portfolio of different types of assets. BMO Commercial Property invests in UK commercial property and pays its dividends monthly, and BMO High Income Trust invests in mid-sized and large UK companies.
Remember that stock market investments can rise and fall in value and returns are not guaranteed, which means you may get back less money than you originally invested.
If you are unsure about the suitability of a particular investment, you should speak to a suitably qualified financial adviser.
Past performance is not a guide to future performance. The value of all stock market investments can go down as well as up and you may not get back the full amount originally invested. If you feel you need specific investment advice that takes your individual circumstances fully into account, please talk to a financial or tax adviser.
BMO Asset Management Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: Exchange House, Primrose Street, London EC2A 2NY. Registered in England & Wales No 517895.
At BMO, our aim is to help our clients overcome the challenges they face and deliver the investment outcomes they seek. We've been helping clients with their financial needs for over 200 years.
A lot has happened since 1817, including the launch of the world's oldest collective investment fund vehicle - F&C Investment Trust over 150 years ago. This fund made investing more accessible to individual investors and we are proud to still manage it today.
We currently manage 10 Investment Trusts, providing a range of investment opportunities including access to equities, bonds, property and private equity. Each trust has different aims and objectives with the option of capital growth, income or a combination of the two and with a specific regional focus or with a global remit.