Monthly Fund Focus: US markets

Posted on 1st August 2025 | By David Stevenson

This month’s dive into the world of funds examines a high-quality way to invest in US equities, whose valuations are edging relentlessly higher. However, it’s not just US equities that are outperforming – after a prolonged period of underperformance, the share prices of many UK-listed alternative funds have pushed ahead.

Too much of a good thing in the US markets

Should you be worried that US equities are so exceptionally successful?

One of my favourite discussion topics when talking to investors is to get them to determine their actual underlying exposure to US equities, especially the Mag7. Add up what’s in your various portfolios, ISAs, your speculative positions, your SIPPs, and your DC target risk and target date funds. Unless you are nearing retirement, you probably have a much higher exposure to US equities than you realise—mainly because US stocks and shares have performed so well. Many long-term investment plans and global equity funds are benchmarked against an index called the MSCI ACWI index (with the MSCI World or FTSE World as alternatives). This index has 64% exposure to US equities, with Information Technology as a sector accounting for 24%, and the Mag7 making up just under 20% of the index. A close rival is the MSCI World index, which has nearly 72% exposure to US equities and just under 22.5% to the Mag7.

At this point, investors start to feel slightly uncomfortable. They’ll smile at the fact that returns have been excellent – even in recent weeks – but they’ll soon begin to worry about all the myriad risks in that exposure: the valuations, the concentration in a handful of stocks and the exposure to the dollar. Has the exceptional outperformance of the US (and its deep, liquid markets) created a risk to your portfolio?

Let’s be specific here: there are three interconnected but separate issues to consider. The first is whether overexposure to the US as a country and the dollar as an asset (which is currently weakening on the FX markets) is beneficial. Next is what we could call style risk for US equities, meaning whether I am overexposed to a specific type of US equity, such as tech stocks or growth stocks. The third risk is concentration risk, where you are concerned about being exposed to just a few stocks, specifically a suitably magnificent seven. It is helpful to distinguish these risks because, for example, you might be comfortable being overexposed to US assets, equally comfortable being overexposed to US tech growth stocks, but worried about putting all your eggs in the Mag7 basket.

Begin by considering concerns about overexposure to the dollar and US assets generally during Trump’s presidency. The dollar has been weakening (which is bad news for UK investors in US assets as valuations have dropped), and it could decline further (Trump would probably welcome that), but there is no evidence of a ‘flight from the US’ so far among private investors. Strategists at US investment bank Morgan Stanley recently analysed fund flow data on what foreign investors are buying and selling and found little sign of a widespread sell-off of US dollar assets. In fact, weekly data from Lipper on global equity ETFs and mutual funds show that international investors have been net buyers in the weeks following Liberation Day and throughout most of May.

But have we all – outside the US – become more exposed to its equity market? The short answer to that question is yes! In 2015, the MSCI ACWI index was only 51% invested in US equities; now it’s 64%. In 2015, Apple was the biggest stock (not Nvidia as it is now) with Microsoft not far behind at just under 1%. The price-to-earnings ratio of this index (a key valuation metric) was 18.50 back then. If we go back further to the year 2000, the US was at 48% (with the UK in second place at 8% exposure). So, is the US close to all-time highs in terms of geographic exposure? Yes, but not exceptionally so – and let’s be honest, if it is, that’s because US corporates have been growing their earnings at an above-average rate.

We can see this clearly with the S&P 500 benchmark index, which tracks US blue chips and has produced an annualised return of 12.8% over the last ten years. US profit margins are among the highest globally, which helps explain why the American index trades at a robust 27 times earnings, which is a somewhat excessive level, to put it mildly.

What about concentration risk or a bias towards specific sectors? Again, there are reasons to be worried, but let’s not get hysterical. The information technology (IT) sector is the biggest slug at 31% of the index, while the Mag7 comprise 32% of the value of the S&P 500 index. Technology’s share of the benchmark US index is high, but not amazingly high. As for concentration risk, if we look at the top ten stocks in the US index over the last century or so, all the way through to the mid-20th century, the top ten names have usually hovered around 20-30%, dropping below that level in the 1990s and 2000s, and then rising sharply in the last few years, reaching a peak of 40% in early 2025. And one sector has long tended to dominate the index – it used to be banks, now it’s tech.

So, what should you do? I’m more cautious about US equities than most and feel more comfortable running US equities at a closer to a 50 to 60% range in a portfolio full of equities. That’s what many successful global equities fund managers, such as the Alliance Witan Investment Trust, have been doing for a while now, notching US equity exposure to below 60%. Like many active fund managers, I’d be overweight Japan as well as the UK, which strikes me as cheap and provides valuable global diversification.

If you still want significant US exposure but seek more diversification, consider choosing a different style or type of stock within a fund. Instead of merely investing in a few tech giants, you could track US equities through something like the Invesco S&P 500 Quality UCITS ETF, which includes the 100 companies with the highest quality scores within the parent S&P 500 index. Alternatively, you might prefer cheaper, more value-oriented stocks and strategies. In that case, there’s an ETF from a firm called Ossiam that tracks an index devised by economist Robert Shiller – it’s called the Shiller Barclays CAPE index. This index (and ETF) still invests in big tech names, but it also tilts towards other well-known firms, with somewhat cheaper share prices, such as Eli Lilly, Costco, and Walmart. More generally, most active, stock-picking US equity fund managers tend to be biased against Mag7 stocks and more exposed to cheaper, value, and quality stocks, as they are more concerned about concentration risks and high valuations.

Oh, and if you think all this talk about US exceptionalism is just needless worrying, then why not go all in, bet on the coming AI transformation, and just buy the Mag 7 names, perhaps excluding Tesla and replacing it with Broadcom, another tech leviathan. One actively managed investment trust that embodies this ‘all-in’ AI-first strategy is the Manchester and London investment trust, which essentially represents a substantial bet on Nvidia and Microsoft (64% of the portfolio) alongside Broadcom and Arista, two other AI-related companies (another 12.5% of the portfolio). Two tech investment trusts, Polar Capital Technology and Allianz Technology, are also betting big on AI and on US tech, but with a more diversified portfolio, which even includes some international names.

Contrian Investor

Inefficient Markets Help Us

Bank $100,000 Annually (per Million)

Fortunately for you and me, the financial markets aren’t 100% efficient. And some corners are even less mature and less combed through than others.

These corners provide us contrarians with stable income opportunities that are both safe and lucrative.

There are anomalies in high yield. In an efficient market, you wouldn’t expect funds that pay big dividends today to also put up solid price gains, too.

We’re taught that it’s an either/or relationship between yield and upside – we can either collect dividends today or enjoy upside tomorrow, but not both.

But that’s simply not true in real life. Otherwise, why would these monthly payers put up serious annualized returns in the last 10 years while boasting outsized dividend yields?

For example, take a look at these 5 incredible funds that pay monthly and soar:

This is the key to a true “8% Monthly Payer Portfolio” – banking enough yields to live on while steadily growing your capital. It’s literally the difference between dying broke and never running out of money!

But I’m not suggesting you run out and buy these funds.

Some have been on my watchlist and in our premium portfolios over the years, but I mention them only as examples of the potential ahead.

Holidays you can afford with different-sized pension pots

Many people look forward to taking more holidays when they retire. But what sort of trips could your pension buy you? We look at the holidays to match different retirement.

Geiranger Fjord, Norway: A large pension pot could give you the funds to do a two-week all-inclusive cruise every year

(Image credit: Getty Images)

By Ruth Emery

Many pension savers look forward to retiring and having plenty of time to take holidays.

When you stop working, you can – in theory – go travelling whenever you like, no longer constrained by requesting annual leave from your employer.

However, holidays cost money, and the type of break and destination choice will depend on the size of your pension pot and any other income sources.

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So, what sort of holiday will your pension stretch to in retirement?

Pensions UK has attempted to answer this question by looking at the holidays that three different retirement lifestyles could afford, from UK city breaks and European week-long trips to cruises and all-inclusive holidays.

The industry body regularly calculates the annual income a pensioner needs to have to achieve a “minimum”, “moderate” or “comfortable” retirement.

Known as the Retirement Living Standards, they take into account food, clothing and leisure costs – including theatre trips and TV streaming packages – as well as transport and DIY expenses. They are designed to help prepare people for life after work.

Pensions UK has now detailed the kinds of holidays pensioners can enjoy each year, according to these three lifestyles.

Cali Sullivan at Pensions UK comments: “When people picture retirement, they often imagine relaxing in the sun, exploring new places, or simply taking a well-earned break from the everyday. But many worry about whether they can actually afford to get away.

“The good news? Retirement doesn’t have to mean giving up on travel. Whether you’re aiming for the minimum, moderate or comfortable level, there’s a budget for all retirement levels, meaning getting away is still very much on the cards.”

Minimum retirement

Single retiree: £13,400 annual income (£20,000 to £35,000 pension pot required)

Couple: £21,600 combined annual income (no pension pot required)

The figures above assume the retirees receive the full new state pension. This is worth £11,975 a year. So, if a couple both received this amount, they would get £23,950 in total.

This is more than enough to deliver the minimum standard of retirement, which costs £21,600 for a couple, according to Pensions UK.

In contrast, a single pensioner would need to find some extra income to deliver a minimum retirement lifestyle. The industry body estimates that a pension pot worth between £20,000 and £35,000 could buy an annuity to top up their income to £13,400.

Sullivan points out that about three-quarters of households are expected to achieve a minimum standard in retirement, and two-person households, who can share living and travel costs, are even more likely to do so. This is due to the generous state pension, and the fact many people are auto-enrolled into workplace pensions.

While it wouldn’t be possible to holiday abroad every year on a “minimum” budget, Sullivan says retirees can look forward to a welcome break each year – “a change of scenery is possible”.

She comments: “A week away in the UK is within the budgeted costs, with plenty of inviting destinations to choose from – whether it’s the coast of Devon, the hills of Yorkshire, the lochs and glens of Scotland, or the charm of Norfolk or Wales.”

Pensions UK says retirees could afford seven nights in a Norfolk caravan park with access to a swimming pool, entertainment and a range of paid activities. A generous £720 budget would be available during the trip for food, meals out and visiting attractions like a Sea Life Aquarium and National Trust properties.

Moderate retirement

Single retiree: £31,700 annual income (£330,000 to £490,000 pension pot required)

Couple: £43,900 combined annual income (£165,000 to £250,000 pension pot per person required)

There are more travel options open to retirees with a bit more flexibility in their budget. To achieve a “moderate” lifestyle, single retirees will need to save at least £330,000 in workplace or personal pensions (on top of the full state pension).

Couples will need pension pots worth at least £165,000 per person.

“Picture two weeks soaking up the sun in Tenerife, Mallorca, Turkey, Rhodes or Spain, all-inclusive. You can also look forward to a three-night city break in a UK gem like Bath, York, Glasgow, Manchester or Cambridge,” comments Sullivan.

“There’s no one-size-fits-all approach either. Some people prefer a couple of shorter trips. Others go for one big splash. Think of it as a ‘pick and mix’ retirement and tailor your holidays to suit your style, mood and budget.”

For example, you could spend a fortnight in an all-inclusive three-star Mallorca resort, costing £1,073 per person plus £200 spending money per person, as well as a three-night city break in Bath, costing £346 with £350 spending money.

Comfortable retirement

Single retiree: £43,900 annual income (£540,000 to £800,000 pension pot required)

Couple: £60,600 combined annual income (£300,000 to £460,000 pension pot per person required)

To achieve a comfortable standard of retirement, you’ll need big pension pots worth at least £540,000 for a single retiree, and £300,000 each if you’re in a couple.

“With a comfortable retirement income, you can expect more freedom to travel further afield and have a longer trip. You could set sail on a two-week cruise to the Mediterranean, or a 12-night all-inclusive cruise around the Norwegian Fjords,” suggests Sullivan.

For example, a 12-night all-inclusive P&O Norway and Iceland cruise costs £2,239 per person (cabin with sea view; including classic drinks package), and your budget could stretch to £900 per person in spending money on top.

Sullivan adds: “Prefer dry land? Lake Garda or a suite in Mallorca might be more your speed. Or if you are looking for variety, you could even split your time on the sea and land.”

As well as two weeks abroad, this level also includes some sightseeing weekends, with three long weekends in the UK included, such as to Bath, York or Cambridge.

How holidays can motivate you to save more for retirement

Most people are not saving enough for their retirement. Last month, the government revived the Pensions Commission to tackle the retirement savings crisis.

It warned that people retiring in 2050 are on track to be poorer than pensioners today, and said that 45% of working-age adults do not save into a pension.

According to Lisa Picardo, chief business officer at PensionBee, “framing retirement planning around lifestyle goals can be a powerful motivator to save”.

She tells MoneyWeek: “For many savers, retirement offers more time to tick new experiences off their bucket lists, and domestic breaks or trips overseas may be a key part of that.

“Thinking about the types of trips you want to take and the activities you want to pursue in later life can help make the idea of saving feel more tangible and rewarding. The earlier you start planning, the more flexibility and choice you will have when the time comes to enjoy the retirement you have worked hard for.”

According to Pensions UK, a couple looking to have enough financial flexibility to afford an annual two-week trip abroad in retirement would need a combined annual income of £43,900.

But, Sullivan says it’s important to note that retirees on smaller incomes can still relax and enjoy a holiday, even if it’s not overseas. And there are holidays to suit every budget.

“We know many people face tough choices due to rising costs, both before and during retirement,” she comments.

“By taking time now to understand your savings, making the most of employer contributions, and planning for the lifestyle you want, you can give yourself the best chance of enjoying the kind of retirement that suits you, complete with the trips, treats and freedom you have worked hard for.”

Here’s how investors can target a £15,882 yearly passive income from just £5 a day invested in this top FTSE dividend star!

Small but regular investments in this leading FTSE 100 financial stock can generate potentially life-changing passive dividend income over time!

Posted by Simon Watkins

Published 13 August

MNG

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

FTSE 100 insurance and asset management giant M&G (LSE: MNG) is one of my core passive income stocks. This is money made with minimal effort from me, most notably in my view from dividends paid by shares.

Many people wrongly believe they need a large capital sum to start making such returns.

In fact, they can generate life-changing passive income for as little as the price of a fancy cup of coffee.

The power of £5 invested daily over time

Specifically, £5 saved and invested each day (£150 a month) in M&G shares will make £9,178 in dividends after 10 years.

This calculation uses the stock’s current average 7.6% dividend yield, with dividends reinvested back into it. This is a standard investment practice called ‘dividend compounding’.

On the same twin basis, the dividends will increase to £154,822 after 30 years.I see this period as a standard investment cycle beginning at 20 and ending perhaps in early retirement at 50.

At that point, this £5 daily investment will have created an M&G holding worth £208,972 (with the monthly deposits included).

And on the same 7.6% dividend yield, this would generate an annual passive dividend income of £15,882! None of this is guaranteed of course and investors could get back much less.

What’s the dividend yield outlook?

A stock’s dividend yield moves in the opposite direction to its price. This is provided that the annual dividend does not change.

In M&G’s case, a recent surge in the share price has seen its dividend yield drop from around 10% to where it is now. This largely resulted from Japanese financial powerhouse Dai-ichi Life taking a 15% shareholding in M&G. It expects the partnership to deliver at least $6bn of new business flows over the next five years

A risk to the business is that the tie-up does not deliver the anticipated benefits.

However, consensus analysts’ forecasts are that M&G’s earnings will increase by a whopping 41% a year to end-2027. And it is ultimately growth here that powers any firm’s dividends and share price higher over time.

Indeed, analysts project that the firm’s dividends will increase to 20.6p this year, 21.3p next year, and 22p in 2027.

These would generate respective yields on the current £2.63 share price of 7.8%, 8.1%, and 8.4%.

Are further share price gains expected?

Price and value are not the same thing in stock market investment. The former is whatever the market will pay for a share at any given time. The latter is the true worth of the stock based on fundamentals for the underlying business.

Identifying mismatches between the two is the key to generating big, sustained profits over time, in my experience. And this comprises several years as a senior investment bank trader and decades as a private investor.

By far the best way of achieving this is through discounted cash flow modelling. This pinpoints where any firm’s share price should be, based on cash flow forecasts for the underlying business.

The DCF shows M&G shares are undervalued by 49% at their present price of £2.63.

Therefore, their fair value is £5.16.

Given this and its very high passive income potential, I will buy more of the stock as soon as possible.

The Snowball will only invest in IT’s/ETF’s.

GCP Infrastructure – Substantive progress

• 06 August 2025
• James Carthew

Substantive progress

Since interest rates began to rise to tackle inflation, GCP Infrastructure (GCP) has, like many similar investment companies, been afflicted by a wide share price discount to net asset value (NAV). The board and the investment adviser have been working to tackle this through a policy of capital recycling. This aims to free up £150m to materially reduce the drawn balance on the revolving credit facility (RCF), return at least £50m to shareholders, and rebalance the portfolio to improve its risk adjusted returns.

As we discuss in this report, share buybacks have stepped up a gear, the discount is narrowing, the RCF has been reduced to just £10m, and the portfolio’s sensitivity to electricity prices has been cut significantly.

There is more to do, but – perhaps attracted by the high dividend yield and improving outlook – investors appear to be waking up to GCP’s attractions once again.

Public-sector-backed, long-term cashflows

GCP aims to provide shareholders with sustained, long-term distributions and to preserve capital by generating exposure primarily to UK infrastructure debt or similar assets with predictable long-term cashflows.

Domicile	Jersey
Inception date	22 July 2010
Manager	Philip Kent
Market cap	657.4m
Shares outstanding (exc. treasury shares)	842.783m
Daily vol. (1-yr. avg.)	1.343m shares
Net gearing	1.2%

At a glance

Share price and discount

GCP’s discount has narrowed somewhat since helped by share buybacks and a capital recycling programme aimed at providing solid evidence of the validity of the NAV; improving the overall quality of the portfolio (in particular, reducing the sensitivity to power price fluctuations); and providing cash to both fund returns to investors and to reduce its floating rate debt. We believe that the discount ought to narrow further from here.

Performance over five years

Despite the many headwinds facing the company in recent years, GCP’s NAV total return has remained positive and has held up fairly well, relative to the return from sterling corporate bonds.

It is encouraging to see the impact of a narrower discount on GCP’s share price returns, but there is hopefully even more to come.

12 months ended	Share price total return (%)	NAV total return (%)	Earnings1 per share (pence)	Adjusted2 EPS (pence)	Dividend per share (pence)
30/09/2020	(2.0)	(0.2)	(0.08)	7.65	7.6
30/09/2021	(7.9)	7.2	7.08	7.90	7.0
30/09/2022	3.8	15.7	15.88	8.30	7.0
30/09/2023	(25.2)	3.6	3.50	8.58	7.0
30/09/2024	28.2	4.6	2.25	7.09	7.0

Source: Morningstar, Marten & Co. Note 1) EPS figures taken from 30 September each year. Note 2) Adjusted earnings per share removes the impact of unrealised movements in fair value through profit and loss

Company profile

Regular, sustainable, long-term income

GCP Infrastructure Investments Limited (GCP) is a Jersey-incorporated, closed-ended investment company whose shares are traded on the main market of the London Stock Exchange. GCP aims to generate a regular, sustainable, long-term income while preserving investors’ capital. The company’s income is derived from loaning money, predominantly at fixed rates, to entities which derive their revenue – or a substantial portion of it – from UK public-sector-backed cashflows. Wherever it can, it tries to secure an element of inflation protection.

In practice, GCP is diversified across a range of different infrastructure subsectors, although its focus has shifted more towards renewable energy infrastructure over the last few years. It has exposure to renewable energy projects (where revenue is partly subsidy and partly linked to sales of power), PFI/PPP-type assets (whose revenue is predominantly based on the availability of the asset), and specialist supported social housing (where local authorities are renting specially-adapted residential accommodation for tenants with special needs).

The board is targeting a full-year dividend of 7.0p per share for the financial year ended 30 September 2025. At the half-year mark, the trust was on track to achieve this, having declared dividends totalling 3.5p per share.

GCP had driven down the RCF balance to £41m by the end of March…

As we highlighted on the front page, GCP is working on a £150m capital cycling programme as part of its efforts to tackle its discount. Money freed up is being used to reduce GCP’s leverage. Drawings on the revolving credit facility (RCF) totalled £43m at end June 2025, down from £57m at end September 2024.

In its latest NAV announcement, GCP revealed that it had reached a settlement agreement in respect of the contractual claim relating to the accreditation of a portfolio of solar projects under the Renewables Obligation scheme (there was a question mark over whether some solar projects were eligible to receive government subsidies). This has been rumbling on for some time – we flagged it in our January 2021 note, for example.

…but with an influx of money from the settlement of a claim, GCP’s net debt is now just £10m

GCP had accrued an amount in the NAV for the anticipated settlement, and so this did not have much impact on the NAV. However, following receipt of the money, GCP’s net debt has fallen to about £10m, equivalent to gearing of just 1.2%.

GCP also intends to return at least £50m of capital to shareholders. We show its recent share buyback activity on page 12.

Market backdrop

Markets are predicting a cut in UK base rates in August, but persistent inflation and low/negative growth numbers are weighing on sentiment

UK economic growth numbers have been weak, with a fall in GDP reported for May, following on from another monthly contraction in April. In such an environment, the predictable income provided by GCP might seem all the more attractive.

The Bank of England cut its base rate to 4.25% in May 2025, but inflation figures have been coming in higher than expected, with UK CPI running at 3.6% and RPI (which is still used to inflate renewable energy subsidies) coming in at 4.4% in June. We could still see another interest rate cut in August, but until inflation is looking better-controlled, more aggressive rate-cutting seems unlikely.

10-year gilt yields, which arguably have a bigger influence on the rating of funds such as GCP than short-term rates, have been fairly flat this year. A number of commentators are concerned about levels of UK government debt, which may be influencing long-term bond yields.

Figure 1: UK 10-year gilt yield

Source: Bloomberg

Figure 2: Median premium/(discount) on AIC infrastructure sector

Source: Morningstar, Marten & Co

BBGI bid underscored the attractive valuations on offer in the infrastructure sector

As illustrated in Figure 2, discounts on infrastructure trusts have narrowed from lows. One catalyst for this was the bid for BBGI Global Infrastructure (a portfolio of equity stakes in PFI/PPP-type infrastructure projects) at a premium to its NAV. GCP still has about 27% of its portfolio exposed to debt funding for PPP/PFI projects.

Plenty for GCP to do if it returns to making investments, but the discount will be fixed first

Talk is growing that a cash-constrained UK government will take a fresh look at PFI-type structures to fund much-needed infrastructure investment in areas such as schools, hospitals, and prisons. This could open up new opportunities for GCP, were it to return to making new investments. The GCP board has been quite clear that it will not consider doing do so until the discount has narrowed to a point where returns on new investments are higher than the return on investing in the existing portfolio through buybacks.

While we wait for decisions on the way forward for PFI, GCP has highlighted the considerable opportunity in financing the transition to a world of net zero greenhouse gas emissions. The UK government’s latest auction round for CfD finance for renewables projects – AR7 – is underway. In this auction round, more capital has been allocated, and fixed-price energy deals are available at higher prices and for longer periods.

The government’s review into electricity markets decided against adopting zonal pricing for electricity. The decision has been welcomed by most investors in generation assets, but it does mean that additional investment will be needed in energy storage and in grid infrastructure, as much of the UK’s energy generation is not in the same parts of the country as energy demand.

Portfolio

As of 30 June 2025, there were 48 investments in GCP’s portfolio (down from 50 when we last published). The average annualised portfolio yield was 7.9% (up from 7.8%), and the portfolio had a weighted average life of 11 years.

If you were trading TR this year, despite having to sit thru a retrace, you still haven’t added a bean to your retirement pot.

FACT

You have added to your retirement pot in only one of the last 4 years, even though this has been a bull market.

Not Naval gazing, that’s a totally different topic for boys and girls.

At 207%, the Warren Buffett indicator says the stock market could crash!

Zaven Boyrazian, CFA

Sun, 10 Aug 2025

Billionaire investor Warren Buffett has shared a lot of wisdom throughout his successful career. However, one gem to come off his desk is the Buffett Indicator – a simple comparison of the US stock market’s total value divided by US GDP.

As Buffett puts it, the indicator is “probably the best single measure of where valuations stand at any given moment”. And for value investors, knowing when the stock market is overpriced is a powerful advantage, even when relying only on index funds.

However, looking at the Buffett Indicator today might cause some concern.

US stocks are expensive

Historically, his Indicator has sat between 90% and 135%. This healthy range generally indicates that US stocks are fairly-to-slightly overvalued and presents an ideal window of opportunity to top up on investments. But following the tremendous artificial intelligence (AI)-driven returns of 2023 and 2024, the indicator’s been rising. So much so that it now sits at a whopping 207%!

That’s the highest it’s ever been since records began in the 1970s. And it’s even higher than the 194% peak seen in late 2021, right before US stocks experienced one of the most severe market corrections seen in over a decade.

That would certainly explain why Buffett and his team at investment vehicle Berkshire Hathaway have been busy selling stocks lately. In fact, the firm just marked its 11th consecutive quarter of being a net seller, with positions such as Bank of America, Citigroup, and Capital One all getting trimmed, or outright sold off.

So could another stock market downturn be just around the corner?

Panic isn’t a strategy

The stretched valuation of US stocks definitely creates cause for concern. However, there’s no guarantee a crash or correction will actually materialise. Therefore, panic selling everything today likely isn’t a sensible strategy, and it’s why Buffett, despite higher selling activity, still has plenty of capital invested in the US stock market.

Dividends can be more reliable than share prices as they’re driven by
the companies performance itself and not by the whim of investors.

As part of a total return / reinvestment strategy, this income could be
reinvested into income assets or back into the equity market
depending on the relative valuations.

The emotional benefits of dividend re-investment, in fact, with this investment strategy you can actually welcome falling share prices.

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Yes and No.

By Emmy Hawker

Senior reporter, Trustnet

Some 88 investment trusts are paying interest-rate busting dividends, according to research by Trustnet, potentially offering a haven for income-needy savers who are unsure where to put their cash.

Last week the Bank of England cut rates from 4.25% to 4%, a move unlikely to be well received by savers, as it should bring bank and building society savings rates down with it.

This may encourage more people to look to invest their cash, with some investment trusts offering significantly higher yields than the current base rate.

These could be ideal for more adventurous savers during this period of lower rates and higher inflation, and can offer more consistent income than funds thanks to their ability to retain up to 15% of income generated each year in reserve.

Investment trusts in the IT Renewable Energy Infrastructure sector have the highest average yield at 6.7%, closely followed by IT Asia Pacific Equity Income and IT Debt – Structured Finance.

Source: FE Analytics

But which investment trusts across these sectors offer the highest yield? Below we look at the top-yielding trusts from the highest-paying sectors.

Coming in top of the table is Aquila Energy Efficiency Trust, which offers an 18.4% yield.

The £26.6m trust was launched in 2021 and aims to generate returns – principally in the form of income distributions – by investing in a diversified portfolio of energy efficiency investments.  

While the dividend may be enticing, investors should note that a higher yield can signify higher risk. For example, this trust has disappointed against its sector from a total return basis, languishing in the fourth quartile across three months, six months, one year and three years.

The trust’s shares trade at a 37.6% discount to the net asset value (NAV).

In second place is another renewable energy specialist, NextEnergy Solar Fund Limited Trust, with the £435m trust’s dividends representing an 11.2% yield.

Also trading at a discount (28.8% to NAV), the growth-focused trust was launched in 2014 and has an over 80% weighting in the UK, 12.4% in Europe ex UK and 3.5% in international.

It has managed a top-quartile performance over three-, five- and 10-years, delivering a 46.5% total return over a decade. However, it has struggled in the past year, managing a 1.4% return compared to its sector average of 5.9%.

Turning to equities, Henderson Far East Income in the IT Asia Pacific Equity Income sector has the highest payout, with a 10.9% yield.

Managed by Sat Duhra since 2019, the £417m trust is heavily weighted to financials but has some 15% in technology names – unusual for an income portfolio.

While there are concerns hanging over the region, such as global trade relations souring between the US and China, there are bright spots, according to the manager.

“The outlook for dividends in the region remains robust as positive free cashflow generation alongside the strength of balance sheets – with record cash being held by corporates – provides a strong backdrop across a number of sectors and markets across the region,” he said in the trust’s latest factsheet.

Despite the manager’s optimism, the trust has failed to perform in recent years, languishing as the worst trust in the sector over one-, three-, five- and 10-years.

By contrast, the £772.4m Invesco Asia Dragon Trust has outperformed its sector across one-, three-, five- and 10-years – delivering 188.2% total return over the decade. It offers a slightly lower yield of 5.3% but still beats the Bank’s base rate.

Managed by Ian Hargreaves since 2011 and Fiona Yang since 2022, it aims to grow its NAV in excess of its benchmark index, the MSCI AC Asia ex Japan index. The trust is at a 6.1% discount to NAV.

There were three UK trusts on the list, with Merchants Trust the pick of the trio, sitting in the top quartile of the IA UK Equity Income sector over five and 10 years. It has struggled more recently, however, sat in the bottom quartile over more recent timeframes.

It offers investors a 5.3% dividend yield.

By contrast, the £176.8m Aberdeen Equity Income Trust, which is offering a 6.3% yield, has been on a strong run over the past one-, three- and five-years, but struggled over the decade.

Managed by Thomas Moore, it aims to provide shareholders with an above average income from their equity investment while providing real growth in capital and income. Top holdings include British American Tobacco, HSBC and BP.

Chelverton UK Dividend Trust is the highest-yielding of the trio at 9% but has failed to beat its average peer over one, three, five and 10 years, as well as over shorter time periods.

Your Snowball should be different to the blogs, generally the longer you have to retirement, you can take a higher risk as you have longer to correct any clunkers.