The lofty valuations of AI stocks in the past few years have dredged up memories for some of the time before the dotcom bubble burst in 2000.
This burst, which led to steep fall in the MSCI World over a period of two years, was due to overinvestment in internet companies that eventually couldn’t live up to their value despite the internet becoming a part of everyday life. It’s simple to see the similarities to today: even with a general consensus that AI will be a world-changing technology, it’s hard to be clear on the companies which will benefit most.
But a striking phenomenon of the dotcom bubble bursting was the performance of value stocks in the aftermath, which shot up as the rest of the market fell. The past is never a perfect indicator of what will happen to markets in the future, but some investors believe value stocks could deliver the same bumper returns if the AI bubble burst.
Investors can see this through the Fama-French HML Factor Data. This is an educational data measure that shows how value-driven stocks perform in comparison to growth stocks. The chart below shows how dramatically value outperformed growth in the period immediately following the dot-com crash.
What does value really mean?
There is no single definition of what qualifies a stock as ‘value’. Generally, it refers to stocks that are unloved by the market, but if these stocks are worth more than their price will depend on who you ask. This makes it a popular area of the market for fund managers that select their own stocks, because it allows them to use their own strategies to see appeal they think others, or indices, might be missing.
Indices offer value options too, but their performance has differed widely based on criteria. The MSCI World Value index, for example, has lagged behind the standard MSCI World in the past five years, with returns of 65.8% and 76%, respectively. But the MSCI World Enhanced Value Index has beat both with a 101.65% return.
How are these value metrics so different? MSCI World Value Index chooses its holdings based on book value (essentially the value of a company’s assets) divided by share price, dividend yields, and 12-month forward earnings multiples. It then gets a score to sort it between value and growth. But a stock can fall in both of these baskets which means the returns of this index aren’t always so different from the broader market.
MSCI World Enhanced Value, on the other hand, uses different metrics, has stricter criteria, and an all-in or all- out approach for if stocks qualify. This creates a smaller qualifying group and a much different return than the standard MSCI World.
This stricter criteria meant that on a longer- term view, including in the early 2000s, the enhanced value strategy won out. However, in times that were strong for growth, such as the 2010s, this index lagged behind.
Balancing growth and value
Value stocks don’t come without risk, and some are cheap for a reason. By relying them on completely, investors would likely have missed out on some of the most impressive market performers in recent years, such as Nvidia and Alphabet. For this reason, many investors choose to use a blend. Indices like the MSCI World are, by nature, weighted more heavily towards growth. So having a separate portfolio weighting that is aimed specifically at value can be a way to even out this risk.
Some value stocks will present a smoother ride than broader equity markets, as many measures of value include stocks that pay high levels of dividends, which tend to be more mature businesses. But other value stocks are discounted severely because the company has had a difficult period. This does involve risk, but it can still be a diversifier to other parts of your portfolio.
Value investments can be hard to sniff out, because it involves deep analysis of why they are trading more cheaply in the first place, as well as what their potential is for the future. There’s always a possibility of buying a stock that looks good value at the time, but keeps sinking instead of recovering. Some prefer to leave it up to the experts and invest through funds. The table shows the best performing value funds of the past 10 years offered on AJ Bell’s platform. Note that these funds will each have different metrics to constitute value, and past returns don’t guarantee future performance.
The Law Debenture Corporation — Outperforming with consistency
The Law Debenture Corporation (LWDB) has published 2025 results, a year in which it built on its long-term record of outperformance versus its broad UK equity market benchmark and peers. We believe LWDB’s unique combination of a UK investment trust and a cash-generative professional services operating business (IPS) are core to this performance. In 2025, portfolio returns were driven by strong stock selection across the range of market capitalisations, with investment flexibility supported by the earnings and cash flow of IPS. With debt and IPS at fair value, NAV total return of 28% was 4.4pp ahead of the benchmark and DPS increased by 6.0%.
Written by Martyn King
Edison
LWDB has generated significant outperformance over multiple periods versus its broad UK equity market benchmark and peers in the AIC UK Equity Income sector. On a fair value basis to end-2025, NAV total return is 60% over three years, 97% over five years and 201% over 10 years, 13pp, 23pp and 77pp ahead of the benchmark, respectively. The proposed Q425 DPS of 10.375p takes the total DPS for the year to 35.5p (2024: 33.5p), the 47th year in which it has been held or increased. 2025 DPS was 1.05x covered by revenue earnings per share of 37.26p (2024: 33.48p), which, along with a higher starting asset base, bodes well for further growth.
IPS accounts for 16% of NAV but its strong cash generation has funded c 30% of the trust’s dividends over the past 10 years. This provides the portfolio managers with greater freedom to balance the requirements for immediate income with the goal of growing capital values over time. They can avoid higher-yielding stocks they deem unattractive and invest in attractive lower- or non-yielding stocks, with greater growth potential or significant, identifiable recovery potential.
IPS delivered a solid performance in 2025, broadly spread across its range of businesses. Revenue increased 7.5% versus 2024 and underlying profit before interest and tax was up by 6.1%, the eighth successive year of mid- to high-single-digit growth. The end-2025 fair value, newly published, increased 7.3% to £209m, driven by growth in cash earnings and reflecting an unchanged earnings multiple.
The investment portfolio continues to be driven by flexible stock selection across the range of large- (c 50%), small- and mid-cap stocks. UK equities (90% of the LWDB portfolio) have performed strongly but valuations remain moderate in historical terms and below global averages. The forward P/E on LWDB’s portfolio is 12.3x, compared with the benchmark’s 13.1x. Attractive valuations continue to be reflected in corporate activity, including several companies in LWDB’s portfolio. The investment managers see strong opportunities across the market and stress the importance of focusing on companies rather than the economy.
The valuation of UK equities and a more defensive, value-oriented sector mix among large caps compared to overseas markets should provide a defence against heightened global uncertainty. IPS is a well-diversified, resilient and growing business with elements of counter-cyclicality and it is relatively insensitive to short-term economic and market fluctuations. LWDB’s consistent performance has been reflected in an average premium to par value NAV of 3% over the past five years.
LWDB a coveted share for when the next market crash occurs, not if but when.
Forget Tech: These 3 Funds Yield 11% (and They’re Just Getting Started)
Brett Owens, Chief Investment Strategist Updated: May 12, 2026
Stocks are surging—but they’re also developing a case of “bad breadth.” That is, most of the gains are coming from a small slice of the market (I’m looking at you, tech).
That’s good news for us contrarians because this shift has left us some sweet dividend deals in other corners of the market. We’re going to capitalize through 3 discounted closed-end funds (CEFs) yielding up to 11.8%.
Together, they form a tidy “mini-portfolio” that includes blue chips (sans tech), bonds and infrastructure plays. Two of these funds offer payouts that roll out monthly, too.
Start With Stocks—and the Gabelli Equity Trust (GAB)
GAB stands out for another reason beyond its hefty 10.6% payout: It’s one of the few US-stock-focused CEFs whose top-10 holdings aren’t heavily weighted toward tech.
Sure, Texas Instruments (TXN) is here, but most of the rest hail from sectors like financials, like Mastercard (MA), and manufacturing, with names like aircraft-parts maker Curtiss-Wright (CW), Deere & Co. (DE) and UK-based Rolls Royce Holdings.
Building a portfolio with minimal tech exposure isn’t easy these days, given that IT and communication services—that latter category includes Alphabet (GOOGL), Meta Platforms (META) and Netflix (NFLX)—together make up 47% of the S&P 500.
But GAB’s bias to other sectors comes as no surprise when you consider that it’s run by value investor (and Buffett disciple) Mario Gabelli.
And GAB itself is a solid value now. You can see that in two ways: First, it’s trailed the market this year, and it really fell behind around late March (in purple below), right around the time tech started its ascent, pulling the S&P 500 (in orange) higher:
GAB Pulls Back as Tech Boots Up the S&P 500
That’s the first sign GAB is a bargain. The second? GAB’s own discount to NAV, which is 3.6%, far below the 10% premium at which it started the year:
GAB’s Discount Falls, Flatlines—Then Sets Up to Bounce
This wider discount is because GAB recently completed a rights offering, under which it offered current shareholders the right to purchase additional shares at a below-market price.
That deal is now closed. The resulting dilution caused by the new shares is behind the wider discount, but I expect that to narrow over time, especially as mainstream investors eventually look beyond tech.
That, plus the fact that GAB pays 10X what the S&P 500 does, makes the fund a sweet index-fund alternative. And if you buy today, you’ll start pocketing GAB’s high payout while you wait.
Next, We’ll Hire the “Bond God” to Scour the Credit Markets for Us
Next up, bonds—and for those we’re turning to the “Bond God,” Jeffrey Gundlach. He runs the DoubleLine Income Solutions Fund (DSL), a holding of my Contrarian Income Report service that yields 11.8% and pays dividends monthly.
With DSL, Gundlach can go after income wherever he sees fit, and he’s built that 11.8% divvie on high-yield corporate bonds, emerging-market issues and a dash of mortgage-backed securities. (Don’t let ghosts of 2008 spook you—these are more regulated than ever.)
He then “tweaks” the portfolio with around 21% leverage. That’s a sweet spot for us—enough to make a meaningful difference as rates fall (which I see as AI caps wage growth) but not enough to be a problem if rates unexpectedly rise.
This savvy approach has driven the fund’s total return ahead of the corporate-bond benchmark State Street SPDR Bloomberg High Yield Bond ETF (JNK) in the last five years.
The Bond God Beats His Benchmark
Even so, DSL trades at a 4% discount to NAV, well below the 1.4% premium it held as recently as September. That’s overdone, and we’re happy to step in and take advantage.
Finally, “Build” Your Income With This 11% Dividend (Paid Monthly)
The NXG NexGen Infrastructure Income Fund (NXG) is a textbook “pick-and-shovel” play on AI. Management does not try to pick winners here.
Instead, like the shopkeepers of the California Gold Rush, it sells the “picks and shovels”—electricity, engineering expertise and chips—the AI kingpins need. And NXG goes further, with companies toiling away on “old school” projects like roads, airports and bridges:
Source: NXG NexGen Infrastructure Income Fund fact sheet
Every query to ChatGPT, Claude or Gemini drives AI’s power use higher. And while renewables are growing, gas is still key, especially when the sun isn’t shining and the wind isn’t blowing. So we’re happy to see pipeline operators like Energy Transfer LP (ET) and ONEOK (OKE) among the fund’s top-10 holdings.
But the really overlooked side of infrastructure is outside tech, in America’s crumbling roads, bridges and highways. To be fair, the government has put up serious cash here, with $5.4 trillion slated to be poured into infrastructure between 2024 and 2033, according to the American Society of Civil Engineers (ASCE).
But that’s still not enough to get everything in good working order: Another $3.7 trillion still needs to be spent. And it will be.
NXG is set up for that next wave of infrastructure spending through stocks like construction firm MasTec (MTZ) and Argan (AGX), an engineering company geared to utility and industrial clients. And of course, utilities benefit from all of this—putting Constellation Energy (CEG) and electrical-gear maker GE Vernova (GEV) in a great spot here.
Management’s smart approach to the infrastructure boom has paid off, with NXG (in purple below) outrunning the S&P 500 (in orange) in the last five years:
NXG Rides the Infrastructure Boom
Despite that, NXG’s valuation has gone the other way: After peaking at a 16% premium last year, it’s pulled back to a 4.6% discount. That’s because, like GAB, NXG has conducted a rights offering.
Given the infrastructure gap (both physical and digital) we just talked about, this discount represents another opportunity, especially as management invests the proceeds of the offering.
Where does all this leave us? With a three-fund “mini-portfolio” that:
Goes beyond tech (while still grabbing a slice of AI’s growth).
Holds top blue chips, bonds and infrastructure plays.
Pays a gaudy average yield of 11%.
Is a bargain, to boot.
That’s a sweet combo in a “greedy” market like this one. I don’t expect these discounts to stick around.
Current cash to re-invest £1,263. I am going to buy for the SNOWBALL another 1k in NESF ahead of their xd date tomorrow, that will give income of £500 to re-invest, before they cut their dividend for future payments.
I may use the next dividends to buy for the SNOWBALL a position in a covered call ETF, higher dividends so higher risk, as it’s easier to monitor a position if you have skin in the game, just to see how risky the proposition is.
The Rule of 300 is broadly similar to the widely used “4% drawdown rule”, which suggests retirees need savings worth around 25 times their annual spending.
However, Standard Life warned that drawdown strategies carry more risk because pension income depends on investment performance and withdrawal levels.
The company said previous analysis showed a £100,000 pension pot could last for life if withdrawals stayed at £4,000 annually and investment growth remained above 5%. But the same pot could run out in as little as 13 years if withdrawals were higher and investment returns were weaker.
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by Henderson High Income (HHI). The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Overview Analyst’s
HHI has hit its 13th consecutive year of dividend growth.
Overview
Henderson High Income (HHI) continues to differentiate itself within the UK equity income space through its blended approach, combining equities with a meaningful allocation to bonds. This structure supports a higher and more diversified income stream, whilst also introducing an element of defensiveness relative to more traditional equity-only strategies.
The Portfolio is focussed on financially robust companies capable of delivering sustainable and growing income, complemented by a bond allocation targeting higher-quality issuers. Recent activity reflects this approach, with additions to the bond portfolio including large, well-capitalised financial institutions such as AXA, ING Group and NatWest Group, alongside new equity positions in Bodycote and selected REITs such as Big Yellow Group.
This approach is also reflected in the trust’s Dividend profile. HHI currently offers a yield of 5.6%, a premium to both the broader UK market and peer group, alongside a 13-year track record of consecutive dividend growth, achieved at an annualised rate of 2.1%. Income is also well diversified, with less reliance on a small number of large-cap payers than the wider market. This is complemented by the use of cheap long-term Gearing, agreed in the past at very attractive rates, which supports income through positive carry and helps fund the bond allocation, whilst also contributing to a more stable overall return profile.
Performance has been resilient over the longer term. Over five years, HHI has outperformed its composite benchmark, reflecting the benefits of its dual equity and bond allocation. Over the past 12 months, returns have been solid in absolute terms, although relative performance has lagged the strong and concentrated rally in UK equities, alongside the moderating impact of the bond allocation. At the time of writing, the trust trades on a 4.2% Discount, in line with its five-year average.
Analyst’s View
We think the case for UK equities is finely balanced. Valuations remain undemanding relative to global peers, and many companies continue to generate strong cash flows. However, the outlook for inflation and interest rates has become more uncertain. Whilst rates have eased from their peak, the recent rise in energy prices, driven by geopolitical tensions in the Middle East, has complicated the path forward. Markets had begun to price in rate cuts, but the risk of more persistent inflation means policy could remain tighter for longer, sustaining competition from alternative income vehicles.
In this environment, we think HHI’s approach holds up well. The combination of equities and a meaningful bond allocation provides both a higher starting yield and a more diversified income stream than the broader UK market, where dividends remain concentrated in a small number of large-cap names. The bond sleeve, funded in part through gearing, is particularly notable. It supports the trust’s premium yield and, with borrowing costs below portfolio yields, creates a positive carry whilst helping dampen volatility. At the same time, the equity portfolio retains exposure to areas where valuations appear more compelling, including UK mid-caps, without an overreliance on energy or other highly cyclical sectors facing heightened uncertainty.
There are, of course, trade-offs. The bond allocation may limit upside in strongly rising equity markets, whilst a higher-for-longer rate environment could renew competition from lower-risk, high-income-generating alternatives. However, in our view, HHI’s combination of one of the higher yields in the sector, diversified income across equities and bonds, and a more defensive profile leaves it potentially well placed to navigate a more uncertain backdrop whilst still offering capital growth potential.
Bull
Differentiated investment process combines equities and bonds to deliver a high, sustainable and growing income, alongside capital growth
Merger with HDIV has increased liquidity and enhanced asset base, lowering costs and broadening appeal
Unique approach to gearing helps boost income and capital growth, alongside reducing volatility in the portfolio
Bear
Allocation to bonds may see the trust struggle to keep pace with a strongly rising market, relative to a pure equity strategy
Tilt to mid-cap companies may bring more sensitivity to state of the UK economy
Whilst the approach to gearing helps dampen some volatility through bond exposure, it will still magnify losses in down markets
As the energy mix evolves, renewables look increasingly attractive, despite market scepticism.
Kepler Trust Intelligence
Disclaimer
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.
We’re back!
Following on from our trip to Europe earlier this year, Alan and I return once more, armed with a format that has struck a chord with our readers. Less formal and more conversational than our usual style, but an effective way of genuinely getting to grips with a topic. At its core, it’s simple: one person knows a subject matter inside out, and the other takes advantage of that knowledge by asking the questions investors actually want answered. Not just the complex ones, but also the seemingly obvious ones, the kind you think you understand until you try to explain them properly.
In investing, it is very easy to get lost in the detail, whether through the terminology, ever-evolving themes or the sheer volume of information available to us. Over time, that can cloud understanding. But we think this format helps combat this. It allows us to strip things back, peel away the layers and help connect the moving parts to build a clearer, and perhaps more complete picture.
This time round, we are turning our attention to the world of renewables, a sector that has grown rapidly but one that has become increasingly complex and, at times, difficult to navigate for those not immersed on a day-to-day basis. As with our trip to Europe, Alan takes the role of the tour guide, and I play the curious tourist, asking the obvious, the overlooked and, occasionally, the uncomfortable questions. The aim is to cut through any confusing narrative and truly understand how the asset class and sector tick.
Josef Licsauer
How do renewable energy trusts make their money?
Alan Ray
At a very basic level, renewables trusts make money by selling electricity, but importantly, in most cases, this is not at the prevailing spot price, which can be volatile. More often than not, renewables trusts have quite a lot of certainty over the price they will receive for several years. This is where things very quickly become jargon- and acronym-heavy, but the fundamental concepts are straightforward enough. One of the other potentially confusing things is that the system in the UK and Europe has evolved over time, with various legacy systems still in play. But the UK’s current system is gradually being adopted, with local variations, across Europe.
The way that renewables trusts get a fixed price is based on a contract for difference (CfD). Here, a ‘strike price’ for the price of electricity is set. If the electricity market’s wholesale price rises above that strike price, the renewables trust pays the difference over to, in effect, the UK government. If the wholesale price falls below that level, the reverse happens. Thus, the renewables trust either gives up excess profit over its agreed strike price or is compensated if the market falls below it. When you read about the UK’s auctions for renewable energy projects, what’s happening is an auction to set the strike price for how much a project can charge. This is attractive for investors as it gives a high level of predictability over revenues, and by extension, dividends.
An important nuance is that this system is designed to encourage new projects, and the auction referred to above is to set the price before a project is built. Signing an initial 15-year contract with a fixed price of electricity gives a developer enough certainty to finance and build a new renewables project.
When these contracts expire, the assets can become ‘merchant’, meaning they are free to sell power at the prevailing price. But very often, renewables trusts will look to sign a power purchase agreement (PPA) with a corporate buyer of electricity. These contracts are conceptually very similar to a CfD and once again secure a more predictable income stream that matches the goal of paying a high and predictable dividend. The way these work is that the renewables trust sells its power to the grid at the wholesale price, and then the corporate buys electricity from the same grid at that price. A PPA will be structured with a strike price, and the differences between the strike price and the wholesale price paid between the two will effectively create the same fixed price that a CfD creates. As you can imagine, large corporates are keen to have long-term certainty over the price of electricity they consume, so these contracts are common between renewables trusts and well-known corporates in the UK and elsewhere. Contract terms can vary depending on specific needs, but the basic concept is usually the same. Finally, you will often see renewables trusts referring to inflation links, as strike prices in both government and corporate contracts can be adjusted for inflation over the life of the contract.
There are some other aspects of the system that are gradually becoming more pertinent. Energy storage, usually using large batteries, is an important enabling technology, and it is likely we will see more of this owned by renewables trusts. These assets also come with a lot of jargon, but essentially have a more ‘merchant’ business model, without the same fixed prices described above. Batteries store power when it’s not being consumed and release it when demand rises, making profits from the difference between the live electricity price, which fluctuates according to demand throughout the day. This means profits are related to price volatility more than absolute price, providing a revenue stream with different characteristics.
There are a couple of specialist battery storage funds, withGresham House Energy Storage (GRID) being the one I know quite well, as in another role I helped with its IPO, and you can see from the price performance that battery revenues on their own are more variable. The big, diversified renewables trusts have taken a careful approach to adding this technology, but as it has become more accepted and part of the mix, you are seeing trusts like The Renewables Infrastructure Group (TRIG) add a small proportion of battery storage into the portfolio.
Energy storage isn’t a new thing on the UK’s grid. Readers may have heard of the Dinorwig ‘electric mountain’ in North Wales, the most well-known of the UK’s pumped storage facilities, which opened in 1984. Here, water is pumped from a lake at the foot of the mountain up to a chamber inside the mountain during times of excess power on the grid, then later released back through turbines when the grid needs it. Batteries are just another form of this and help to stabilise the greater variability of output, or ‘intermittency’ of renewable energy, compared to more traditional forms of power generation. It also highlights that although the technology changes, some things don’t: whether it is coal, gas, wind or nuclear, electricity demand does not always neatly match when it is generated.
So overall, the system encourages enough predictability to stimulate new asset development but also allows more mature assets to secure predictable cash flows. This is why, despite share price volatility in recent years, the main renewables trusts have had very predictable dividends.
JL: I’ve heard that investments in renewables are often structured in clever ways. Can you expand on that?
AR: Yes, this knowledge is often assumed in, for example, annual reports, so it’s worth spending a couple of minutes thinking about this. Assets are usually held within individual companies that the trust itself is the sole shareholder in, and you will very likely see a list of these somewhere at the back of a renewable trust’s annual report. You might see these referred to as SPVs, or special purpose vehicles, but they are basically just a company with the sole purpose of owning an asset. Often, they borrow, or gear, which is something we are all familiar with from conventional investment trusts. But in renewables and infrastructure generally, it’s very common to borrow one step removed.
This has some advantages. The first is that, as we discussed above, assets have a life and so borrowings can be matched to that, amortising over the life, rather like a capital repayment mortgage. Second, and this is usually hypothetical, debt held this way has no recourse to any other assets the investment trust owns, so if things go awry, the lender cannot impose any restriction on the trust, only on the specific asset. Third, it’s usually more tax efficient to own assets this way. While investment trusts don’t usually pay much tax, owning infrastructure assets can be more ‘leaky’ and structuring this way brings them back to a similar position to more conventional investment trusts, where little or no tax is paid on revenues and capital gains inside the trust. Unfortunately, just like any other investment trust, we shareholders will still have to pay tax on dividends and capital gains, unless we own them through an ISA or SIPP.
JL: What are the key risks investors should be aware of before allocating to the sector?
AR: Well, of course, the last few years have shown that the renewables trusts are ‘interest rate sensitive’, and I mean this in two ways. The first is the most obvious: if interest rates are higher, then borrowing costs can also rise, which can impact returns on what is, as discussed above, a geared asset class. But probably the greater impact has come from the reaction in share price terms. Before interest rate rises in 2022, many of the largest shareholders owned renewables trusts for their yield, as an alternative to government bonds, which yielded almost nothing. When it became possible to buy government or investment-grade bonds at much higher interest rates, there was a switch out of more risky yield assets, and renewables were one of the sectors impacted.
This is why we often show their dividend yields as a ‘spread’ over the UK’s ten-year government bond. Although it’s not a perfect comparison, it has had a very big effect on investor behaviour. So, investors need to be aware that rate rises are very likely a negative for share prices, but the opposite is also likely to be true.
I have found over the years that some investors can get a bit fixated on new technology that will supplant what we have today, and it’s often said, ‘we should just build more nuclear power stations.’ I actually think that’s right, as a diversified power mix is really the best solution, but it’s worth bringing this back to the commercial realities. The UK’s newest nuclear power station, still under construction, has a 35-year power price agreement. The price was set based on 2012 prices, which was when the deal to construct it was originally in discussion, and has risen in line with inflation since, currently about £130 per MWh, before the plant has even started generating electricity. This is expected to start in 2030, at which point a 35-year inflation-linked power price contract kicks in.
In contrast, recent UK renewables auctions have seen solar achieve a strike price of about £62 per MWh, onshore wind £72 per Mwh and offshore wind £91per MWh, with contracts that run for 15-20 years. Again, these are also inflation linked, but they highlight just how expensive nuclear power is. It has clear advantages, not least that it’s ‘always on’, but it also presents enormous, and expensive, technical challenges to get it up and running. As we discussed earlier, the differences in strike prices reflect the varying risk and complexity across technologies, with offshore wind requiring a higher return, but still well below nuclear.
Elsewhere, I mention how a diversified strategy can make sense, but those higher strike prices for wind highlight that there are great opportunities to be a bit more focused. One of the largest players in the sector, Greencoat UK Wind (UKW), is a great way to access a mix of offshore and onshore wind assets in the UK. This is appealing as, although offshore sits a bit higher up the risk curve, the rewards are also quite high, and potentially double-digit, which, for a long-term, predictable cashflow model, is really very attractive.
So, while we can’t just dismiss technology risk, the economics of the most obvious competitor are very different, and the timelines to become operational are long. There is a big effort behind smaller nuclear power stations that will be faster and cheaper to build, but these are far from being operational. While the theory of having many, more widely dispersed small nuclear power stations is great, and even more enticing because the UK’s Rolls-Royce is a bit of an expert in this field, I can’t help wondering what happens when the planning application to build one near my or your town goes in!
This brings us to policy risk. There is no doubt that pro-renewables policies in the UK and elsewhere are coming under pressure. We’ve seen a second energy price shock in just a few years, and any extra costs included in consumers’ bills are obvious targets for political discussion. It’s hard to say what a change of government might mean, but we do know that renewables are very often the largest source of electricity on the grid in the UK, and it would be difficult for any government to walk back from that once they are faced with the reality of government rather than the luxury of opposition. But again, we shouldn’t just dismiss this, and we need to keep a careful eye on it.
The last thing I’d highlight is that there is a shift in the sector to taking on more development and construction risk. First, it can generate higher returns, often double-digit, with an attractive balance between risk and reward. Second, renewables trusts have evolved from simply buying operational assets by issuing shares into more fully-fledged power-generating companies. With wide discounts to net asset value, raising new capital through share issuance is more challenging, but the trusts have grown beyond their initial remit and have the skills and experience to build new assets.
This will be a gradual process, as trusts are keen not to put their dividend cover under pressure. Allocating capital to construction means that, initially anyway, there is no yield on that capital, so we are seeing incremental increases rather than dramatic shifts, as the renewables carefully model how much capital they can use for construction without impacting on dividends. Ultimately, this will lead to a more self-sustaining business, and while it moves things up the risk curve a little, I think the balance of higher reward will be worth it.
JL: How does investing in renewables compare to more traditional infrastructure or utility investments?
AR: It’s no coincidence that the AIC sector name is ‘Renewable Energy Infrastructure’ as it shares many characteristics. We already looked at how investments are structured, and this is very much the way that traditional infrastructure is done as well. We’ve talked about how renewables trusts get paid, and while this is different to broader infrastructure, at a higher level, it shares the same basic characteristics of predictable long-term cash flows. In infrastructure, you will see investments that are ‘availability’ based as well as ‘demand based’, and the renewables definitely fall into the ‘demand based’ in that they do have to generate electricity to get paid! So, you can view renewables as a specialist subset of infrastructure.
JL: How do you value a renewables asset?
AR: As the saying in financial analysis circles goes, valuation is an art as much as a science, and the same is true in renewables. NAVs are calculated using very standard techniques and forecasts, but the very fact that forecasts are among the inputs means that NAVs can be viewed as being slightly ‘plus or minus’. While I know that many people like the accuracy implied by a NAV to one or two decimal places, it’s probably better as an investor not to look too hard at the numbers to the right of the decimal point, and to treat the first number to the left as indicative.
Overall, though, I think they veer more towards the scientific than the art. When you hear an equity fund manager talking about valuing the cash flows of a ‘real’ company, what they are doing is, conceptually at least, the same thing that renewables trusts do to calculate their NAVs. In the very simplest terms, this involves lining up all the predicted cash flows over as many years as can be sensibly forecasted, and then these are discounted back to give a ‘present value’. This discounted cash flow, or DCF, method isn’t the only way to value a company, but it is one of the well-established techniques. When you see a renewables trust referring to the ‘discount rate’, this is not the discount to NAV that we investment trust folk usually mean, but the rate at which future cash flows are discounted back to the present. A higher discount rate indicates that future cash flows are regarded as less probable, or more risky, but also means that potential returns are higher. So, as discount rates across renewables have trended slightly higher in recent years, we can say that there is a little more caution built into valuations. But therein lies the opportunity!
So, what are the main inputs? Renewables trusts often refer to power price forecasts or the power price curve. These are third-party forecasts that give expected power prices many decades into the future. As we saw earlier, quite a lot of revenues in the renewables trusts are fixed, but not all, and usually asset lives extend far beyond the period that revenues are currently fixed. This means a future forecast of power is an important input. Different renewables trusts will have slightly different approaches, but generally they all take independent forecasts from the same group of specialist firms, and sometimes may take the average of more than one forecast. So, yes, there can be some variation, but essentially the renewables trusts are all valued using similar power price forecasts.
More general inputs will be assumptions about long-term interest rates and inflation, and these are usually third-party consensus forecasts. You are unlikely to find much difference between the various renewables trusts.
One very obvious thing about all the renewables technologies we discussed earlier is that they are weather dependent. In fact, there’s quite a good inverse correlation between sunshine and wind, which is why, as an overall national strategy, it’s good to have some of both, as they tend to perform best at different times. One of the most important pieces of analysis that goes to valuing assets is the range of output they achieve, based on probability. In the industry, there are three standard scenarios, referred to as P50, P10 and P90.
P50 is the base case, with a 50% likelihood of happening, whereas P10 is the optimistic case, with a 10% probability, and P90 is the low case, with a very likely 90% probability. Weather is obviously an incredibly important part of modelling this, but other factors like the technical performance of the equipment over time and the maintenance required will also be factored in. Renewables trusts’ NAVs will be calculated on the P50 scenario, but when you read the annual report for a renewables trust, you will usually come across a sensitivity analysis that shows how much variation the NAV will experience for a given movement in any of the above inputs, including the difference variation between P10 and P90. This is incredibly useful as it means investors who have their own views about inflation, interest rates, or power prices can form their own opinion. This means that renewables trusts are, once one gets used to all the technical language, actually rather transparent.
That variability of weather and the different times of the day or year that different technologies work best is why some renewables trusts take a diversified approach, owning a range of different wind and solar assets in different locations or even countries. Two of the best examples are TRIG and Octopus Renewables Infrastructure (ORIT), which both own assets in different European countries, with the UK as the largest single country. TRIG is so large that even though it is diversified across many assets, it has a stake in the UK’s giant Hornsea One offshore wind array, which generates enough to power over a million homes. ORIT’s manager will be very familiar to readers as it is part of the group that includes one of the largest domestic energy companies in the UK, and ORIT benefits from all the expertise that comes from a much larger group with huge experience of developing and operating assets in the UK and elsewhere.
JL: Renewables had a difficult couple of years. Was that a structural issue, or more about the environment they were operating in?
AR: Earlier, we looked at how interest rates have had a huge impact on share prices. It’s notable through that period that dividends have not been cut, and while, yes, NAVs have fallen, it’s not to anything like the same extent as share prices. One thing to keep in mind is that performance tables used across the industry are ‘total return’, and a key element of total return is that dividends are reinvested. Total return gives us an ‘apples with apples’ comparison of performance across different types of funds in different sectors, so perhaps we could say it is, like democracy, the least worst of all the various systems. But very often, investors in high-yielding investment trusts are not reinvesting the dividends, so their actual performance experience will be different.
That’s not to diminish the frustration felt from a falling share price, but reinvesting in a falling share price is obviously going to magnify the loss, and many, perhaps most, investors won’t have done that. Interestingly, we are seeing some of the value specialists, such as MIGO Opportunities (MIGO), picking up shares in the renewables trusts in recognition of the value on offer.
Everyone has to decide for themselves if they can live with a share price that might be more volatile than the underlying NAV, but one of the key things to think about is dividend cover and how sustainable it is. If a renewables trust can keep paying, and growing its dividend, then with yields often above 10% at the time we are writing this, the old phrase ‘being paid to wait’ really comes into play.
JL: ESG as a topic has fallen by the wayside in recent years. From the initial spurt of green washing and labelling ESG for the sake of it, anything ESG has performed poorly. Where are we now, and do renewables fall into this camp, given the E of ESG? Or, are these investments really as green as they’re often marketed?
AR: This is a big topic, and yes, the climate has changed rapidly, no pun intended. But stepping away from renewables for a moment, one thing I think is worth thinking about is how ESG investing is evolving to accommodate the defence industry. It’s not true to say every ‘ESG’ equity fund is now open to defence stocks, but there has certainly been an evolution of exclusion policies. Turning that logic around and applying it to renewables, even if, as an investor, one doesn’t care at all about net zero, energy security is arguably part of a holistic defence strategy. So, I think it is possible for investors of all kinds to find some common ground. And as we looked at earlier, renewables assets are commercially viable, so you don’t have to be an ESG investor to find a reason to invest.
Also, I’d note that, unlike other ESG scores, which involve quite a lot of subjectivity, renewables trusts’ main impact is measurable and is usually in the first one or two lines of any trading update, i.e. how much electricity has been generated.
AR: Final thoughts
I’m going to leave the closing to Joe, but I’d conclude with one thought, which is here we are again in another unfolding energy crisis that exposes how vulnerable the UK is to fossil fuel prices, and at the same time, the big renewables infrastructure trusts are trading at the widest spreads compared to UK government bonds that they have ever done. I know that UK government bond yields might go up, I know that the renewables trusts don’t immediately profit from spikes in electricity prices, and I know the political climate is a bit tricky, but I just find this to be such a strange anomaly, and I think in the fullness of time others will see the same thing.
JL: Final thoughts
What struck me most from this discussion with Alan is that renewables are both more complicated and more straightforward than they first appear. The jargon can be off-putting, from PPAs to P50 assumptions and discount rates, but the core idea is relatively simple: these are long-life, income-producing assets selling something the world needs more of, not less.
That does not make the sector risk-free, far from it. Interest rates, politics, power prices, weather and construction risk influence the asset class, and we should not ignore them. But equally, it feels too narrow to judge the sector purely through the lens of recent share price weakness, or to dismiss it as yesterday’s ESG trade. These assets are already embedded in the energy system. In the UK, renewables now account for more than half of electricity generation, which makes the sector look far more like core infrastructure than a niche allocation.
What has changed, perhaps, is the narrative. The case for renewables is no longer just about decarbonisation, but something more pragmatic: energy security, affordability and meeting rising electricity demand as economies continue to electrify. For me, that is the key takeaway. Renewables sit at the intersection of infrastructure, income and long-term demand for electricity and power. To me, that feels increasingly relevant, particularly in today’s environment.
Renewables Infrastructure Group promises £300m more disposals and fee cut ahead of AGM continuation vote
11 May 2026
QuotedData
Gavin Lumsden
The Renewables Infrastructure Group (TRIG) has sought to shore up shareholder support for its continuation vote next month with the £1.6bn InfraRed Capital fund saying it will target £400m of asset disposals in the next 12 months, an increase of £300m, in order to prioritise share buybacks to tackle its 34% share price discount and repay £240m of borrowing.
No new third party investments will be made and, if the continuation vote on 30 June passes, management fees will from July be based on market value not net asset value. Added to fee cuts made last year, this will save the investment company around £8m a year, a 28% reduction in costs, chair Richard Morse was preparing to tell investors at a capital market seminar this afternoon.
He said the company was already in exclusive talks regarding the sale at “an acceptable price” of a UK offshore wind asset to an experienced international infrastructure investor, which was doing due diligence. Analysts at Winterflood believed this was TRIG’s £160m stake in the Beatrice wind farm off the coast of Scotland.
“Disposals will be targeted to preserve the portfolio composition required to deliver the medium-term growth opportunity,” said Morse.
“Whilst we maintain a high conviction in TRIG’s investment case, it is clear that we must go further in our actions to manage the company’s persistent share price discount,” Morse announced before the investor meeting.
TRIG has been in the spotlight since a rebellion by shareholders in InfraRed stablemate HICL Infrastructure (HICL)scuppered a proposed merger with TRIG made last November. At the time investors such as CG Asset Management commented on TRIG’s vulnerability to falling power price forecasts and government policy changes.
Earlier this month TRIG reported the portfolio had stabilised in the first quarter with NAV per share adding 0.1p to 104.1p after falling 10.3% last year. Nevertheless, from a peak of 134.6p at the end of 2022, NAV per share has fallen 27.5%. Even with dividends included, the shares have fallen 31% over three years but have returned a total of 28% over a decade.
Despite the high 11% yield on the lowly-valued shares, TRIG is confident it can sustain a progressive dividend covered 1.1 to 1.2 times by earnings. It says a combination of disposals and investments in existing assets with buybacks can generate around 4% annual growth in distributable cash flow per share in the five years to 2030.
Morse said the board considered serving notice on InfraRed and becoming a self-managed fund or appointing a new external manager. However, consultation with shareholders showed a majority supported retaining InfraRed as the “best management team to deliver the board’s further discount management initiatives and support TRIG’s medium-term growth opportunity”.
Our view
Matthew Read, senior analyst at QuotedData, said: “TRIG’s announcement represents a sensible and pragmatic response to the current environment. Recent sales processes across the listed renewables sector have shown that, despite the strong long-term case for these assets, now is not an especially attractive point in the cycle for large-scale disposals. Against that backdrop, TRIG’s strategy of selectively recycling capital over time, rather than pursuing wholesale asset sales, appears well judged.
“The proposed use of proceeds also makes good strategic sense. Share buybacks at current discount levels are highly NAV accretive, while reducing RCF borrowings should strengthen the balance sheet and improve financial flexibility. Retaining the ability to invest selectively into proprietary internal opportunities where returns exceed those available from buybacks also reflects a disciplined approach to capital allocation.
“The dividend is a key attraction for TRIG shareholders and so we are pleased to see both the further reduction in management fees which will help support the dividend, along with the focus on delivering a sustainable, well-covered dividend.”
abrdn European Logistics Income PLC ex-dividend date Alternative Income REIT PLC ex-dividend date BlackRock American Income Trust PLC ex-dividend date EJF Investments Ltd ex-dividend date Fidelity Special Values PLC ex-dividend date Greencoat UK Wind PLC ex-dividend date Majedie Investments PLC ex-dividend date NextEnergy Solar Fund Ltd ex-dividend date Octopus Renewables Infrastructure Trust PLC ex-dividend date Partners Group Private Equity Ltd ex-dividend date Pershing Square Holdings Ltd ex-dividend date Target Healthcare REIT PLC ex-dividend date
With an estimated discount ceiling of 15–20%, there’s still room for discounts to tighten if NAV performance improves this year, potentially driving strong total returns when paired with dividend yields of around 10%.
