If u want to DYOR for high yielding Trusts for your portfolio.

GSEO will be leaving the watch list as it yields below 7% after

it rose by 29%.

Bear

The Trusts that have increased the most from their low are more high risk as they could return to their low or lower.

RGL. Trusts don’t trade at big yields for no reason, although Mr. Market isn’t always right but the risks are much higher.

Bull

They are the Trusts favoured by the market, for whatever reason.

The fcast for the blog portfolio using this tax year, ending next month, the total would be £10,880,00, compounded at 7% for the next nine years would achieve a pension of

£20,019,00 pa

The blog portfolio will retain the end of the year for reporting its income.

Compound growth: A powerful argument for investing long term.

Provided by This Is Money

Investing over many years eventually reaches a ‘tipping point’ where your returns double what you’ve put in to date, highlights new research from Interactive Investor.

In a powerful argument for investing long term, compound growth can account for an ever larger share of your portfolio or pension fund over the years.

Putting £250 per month into investments returning 5 per cent a year would see a gain of £83 on your £3,000 total contributions, or 3 per cent, in year one.

This means that your returns after that year would represent just a small percentage of the total pot. 

But by year 10, the power of compounding would mean the portion delivered by investment growth would make up 30 per cent of the overall portfolio, and by year 20 it would be 72 per cent.

At year 26 it would hit 105 per cent – with a pot containing £78,000 worth of your monthly contributions over the period now worth £160,229.

Then you’ve reached the tipping point where your returns double what you’ve put in.

If you paid in the same amount but achieved an annual investment return of 7 per cent, it would take 18 years to reach the investment ‘tipping point’, calculates ii.

When considering compounding, you also need to take into account inflation and charges.

Compounding returns offer a layer of protection against investment volatility, says Myron Jobson, senior personal finance analyst at ii.

‘Generally, as your investment grows, compounding becomes more significant, and there’s a point where growth outpaces new contributions.

‘This varies for each individual’s investment strategy and market conditions. 

‘In our scenario, the investment tipping point is 26 years, but the reality is many investors will hit their financial goal, be it investing to buy a home or for retirement, a lot sooner.’

Five per cent growth: Impact of compounding interest over 30 years on £250 monthly contributions (Source: Interactive Investor) 

Jobson explains: ‘The nature of investing means the annual rate of return isn’t fixed, meaning you can earn more or less in a given year, depending on the market environment.

‘Investing as much and as early as you can – ensuring that all expenses can be met and maintaining a rainy-day fund – can pay dividends over the years. The key is to stay the course, don’t make unnecessary changes, and reinvest dividends and interest earned on investments.’

Jobson adds that for pension savers, retirement investments are turbocharged by the tax relief and employer cash that are added to your own contributions.

‘This dual advantage not only amplifies the initial investment but also leverages compounding over time, accelerating the growth of the pension fund.’

Seven per cent growth: Impact of compounding interest over 30 years on £250 monthly  contributions (Source: Interactive Investor)

Pensions and the magic of compound growth 

Even if you don’t have a stocks and shares Isa, the magic of compound returns is probably already benefiting you, if you are one of the millions of Brits contributing to workplace or personal pensions every month, writes Becky O’Connor, director of public affairs at PensionBee.

Pensions are possibly the longest-term investment you will ever have, which makes them particularly fertile ground for compounding to work its magic.

Think of your own and your employer’s pension contributions as the seeds, tax relief as the water, your investment plan as the soil and compound growth as the sunshine, helping to grow what eventually becomes a mature pension pot for when you retire.

The investment ‘tipping point’: When do your returns overtake total contributions?

One of the beauties of pensions is that if you start paying into them early, as so many workers now do thanks to auto-enrolment kicking in at age 22 (set to come down to 18), you will benefit from around 45 years of compound growth from the investments within that pension.

In fact, assuming roughly similar average annual investment returns, the impact of compound growth for younger pension savers who maximise their workplace pension contributions in their early career rather than starting with lower contributions or even foregoing a pension altogether for more immediate priorities, can be really astonishing.

Someone who makes the same annual contribution of £2,000 a year for their whole working life, but misses five years of pension contributions in their twenties would have a pot £22,000 lower at retirement, at £121,450 rather than £143,215.

“Compounding can work against you too, in that percentage fees on investment products can add up the wrong way, magnifying the reduction in your investment pot over time”

However, if they choose to keep paying in when they are young and instead miss those five years of contributions when they are older, from 60 to 65, the impact on their pension pot is much smaller – with a pot size around £11,000 lower, at £131,895, highlighting the greater importance of contributions made early on to eventual pot size.

Of course if your investment grows by significantly more than the fee, the impact of this is reduced, but it’s worth keeping an eye on and making sure you aren’t being charged over the odds for an investment that isn’t delivering.

Let’s assume u bought the 3 Trusts above, equal weight and

the dividend yield at the time was 7%, it wasn’t but it matters

little.

Your 10k capital has decreased but u have earned £700 in dividends.

In ten years time if nothing changes and u are able to re-invest the dividends at 7%, your capital will have been returned. Your account would be

10k of dividends

plus the value of your Trusts.

As the intention is to never sell the Trusts and to use the dividends for a pension the value of you Trusts matters little to u, maybe more to those wee cats and dogs u are going to leave your capital too but they don’t know that fact.

Now after ten years u still have 7% income from your Trusts.

If the 10k is invested in Dividend Income shares yielding 7% your initial 10k

will be yielding 14%.

The more years u have of re-investing the bigger your Snowball will be.

Your dividends should grow over the ten year period, not included in the calculations and if/when share prices improve, your buying yield will remain the same but your running yield will fall, so u might have the chance to flip your Trusts but that’s another post for another day.

GetRichSlow

Dividends really do matter over the long term, even in North America
Investors in America have swarmed into growth stocks with rampant earnings growth and fat margins, ignoring boring old dividends. But those humble dividend cheques matter over the long term, even in North America, the home of the Magnificent Seven.

By
David Stevenson

A few weeks ago, the social network tech leviathan Meta announced that it would pay its first dividend, at a $0.50 quarterly rate, with a yield of 0.51% (using the closing price on the day). That annual dividend will cost the firm $4.4 billion. The payout in absolute terms makes it the 31st biggest dividend payer in the S&P 500 and should increase the S&P 500 yield by 0.74%, to 1.4609% from 1.4501% pa.

For many investors, this seemed a surprise at the time – a growth stock paying a dividend? Surely the best thing to do is to keep reinvesting back in the business. But Meta’s boss Mark Zuckerberg has realised once essential bit of investment logic. At some point, your potential growth rate slows down and at that point, you need to reward patient investors for providing you with the cash to expand. Cue a dividend. It’s also very normal for US corporations to pay a dividend. According to analysts at S&P Dow Jones, the total dividend payout for all stocks in the benchmark S&P 500 index hit – by February 1, 2024 – $600 billion. Ten years ago, that total payout amounted to just $330 billion. Those increasing dividend payouts remind us that investors in equities receive a return from many different sources. The dividend cheque is a direct return of course, and that payout can increase over time as the corporation grows its profits. Many investors then choose to reinvest that dividend back into those shares. In addition, shares can also be re-rated i.e. the multiple investors are willing to pay for those shares changes over time. In the last few decades, that multiple for US stocks has increased.

Analysts look at all these moving parts (dividends, dividend payout growth, dividend reinvestment and multiple expansion) through the lens of what’s called total shareholder returns. Analysts at French investment bank SocGen have looked at different countries in different decades and broken down how that total shareholder return has grown. Looking at returns from 1970 onwards they’ve found that in the UK nearly all the returns from investing in equities through to today have come from the dividend and the subsequent growth of that dividend payout over time. That’s true also for equities in France, Australia and Germany. Looking globally, they found that since 1970 the annualised real return from investing in equities was just over 5% pa of which the real price return (multiples expansion) was just over 2% implying that the rest of the total return comprised dividends, dividend payout growth and dividend reinvestment.

In the US by contrast, multiple expansion was a much more significant element although of course US stocks do pay a dividend – according to academics at Yale, the median dividend yield for the entire period since the end of WW2 was 2.90%. Another study this time by analysts at S&P Dow Jones looked at returns since 1926 and found dividends have contributed approximately 32% of total return for the S&P 500, while capital appreciation (multiple expansion) has contributed 68%. It’s important to say that the contribution of dividends to total returns varies, even in the US. From 1930–2022, dividend income’s contribution to the total return of the S&P 500 Index averaged 41% but peaked at above 50% in the 1940s and 1970s and dipped below 30% in the 1950s, 1990s and 2010s.

And of course, the compounding effect of receiving a dividend cheque, the business increasing the dividend payout every year and the investor subsequently reinvesting the dividend cheque in the stock is huge. According to S&P Dow Jones, if you’d have started in 1930 with $1 invested in US equities, excluding dividends, the return of the S&P 500 on Jan. 1, 1930, would have grown to $214 by the end of July 2023. During the same period, the return of the S&P 500 with dividends reinvested would have been $7,219. Another study this time by US fund management group Hartford noted if we start at 1960, 69% of the total return of the S&P 500 Index can be attributed to reinvested dividends and the power of compounding.

So, dividends matter, even in the US. And what’s true for the US is also true for its North American peer, Canada. According to Canadian bank RBC, over the past 30 years, dividends have accounted for 30% of the total return from the Canadian equity market, although that fell to 31% over the last 30 years. Over the past 46 years, dividends have contributed an average of 3.2% per year to the S&P/TSX Composite Total Return. Crucially the Canadian equity market now offers a much higher dividend yield over U.S. equities – the yield advantage offered by Canadian equities is currently at one of its widest levels in over 20 years, running at above 3%. That gap is why UK funds such as the Middlefield Canadian Income Trust – an investment trust that focuses on Canadian and to a lesser extent US dividend-paying equities – have proved popular. The Middlefield fund is currently yielding 5.3% on a discount of 15%.

There’s a catch though. While dividends do matter in North America – both in the US and Canada – that doesn’t mean that just blindly investing in the highest-yielding stocks is the best strategy. Numerous studies have shown that investors should avoid the highest-yielding stocks and stick with dividend-paying businesses with more modest yields, strong balance sheets and growth potential. US fund management firm Hartford quotes a study by Wellington Management from a few years back which involved dividing dividend-paying stocks into quintiles by their level of dividend payouts. The first quintile (i.e., top 20%) comprised the highest dividend payers, while the fifth quintile (i.e., bottom 20%) comprised the lowest dividend payers. According to Hartford, “the second-quintile stocks outperformed the S&P 500 Index eight out of the 10 time periods (1930 to 2022), while first- and third-quintile stocks tied for second, beating the Index 67% of the time. Fourth- and fifth-quintile stocks lagged by a significant margin.”

So, although dividends are a useful component of total returns, how you invest to get those dividend cheques matters hugely. Don’t be fooled by high-yielding value traps, think about how the dividend can grow sustainably over time. Study after study has shown that corporations that consistently grow their dividends have historically exhibited strong fundamentals, solid business plans, and a deep commitment to their shareholders. And arguably now is a great time to think about growing the dividend in the US (and Canada). According to equity analysts at French investment bank SocGen, the average dividend payout ratio over the past 96 years has been 56.3%. As of December 31, 2022, the payout ratio stood at just 37.1%, implying plenty of potential for other large corporates to follow the example set by Meta. North America is full of businesses like Meta that are cutting back on their debt, reining in their share buyback programmes and rolling in cash. Maybe the time for the humble dividend cheque might finally have come, even for the go-go momentum-driven markets of North America.

A 10-year anniversary: the TRIGger for a closer look at The Renewables Infrastructure Group
Anyone out there know what they will be doing in 10 years’ time? Well, Doceo Insights has a good idea of what it will be writing about in March 2034…

By
Frank Buhagiar

Can you remember what you were you doing on Monday 29 July 2013? Lying on a beach somewhere hot perhaps (at the time 2013 was the ninth warmest summer on record in the UK)? Chances are the then Team TRIG (The Renewables Infrastructure Group) will have no trouble remembering what they got up to on that particular summer’s day – celebrating the company’s IPO (Initial Public Offering) on the London Stock Exchange and the successful raising of £300 million. A 10-year anniversary? An opportunity to see how far TRIG has come since those heady days of summer 2013 that just can’t be ignored…

Rewind
Back to 2013, what did TRIG look like and what did it do with the funds raised at IPO? A delve back into the archives unearths the company’s 2013 Annual Report which states: “IPO proceeds used to acquire an initial portfolio of 18 high quality wind and solar assets – diversified by technology, weather systems, power markets and regulatory regimes – which is performing in line with expectations”. By November 2013, the portfolio had expanded to 20 projects: “In accordance with TRIG’s strategy set out at the IPO, initial portfolio expanded with acquisition of two solar parks in November to bring portfolio to 20 investments at 31 December 2013 (14 onshore wind and 6 solar PV assets in the UK, Ireland and France with total generating capacity of 288.4MW)…” As for a portfolio valuation, the Report goes on to say: “Directors’ Valuation of the portfolio at 31 December 2013 of £300.6 million (compared with £279.4 million as at 29 July 2013)…”

20 wind and solar assets; total generating capacity of 288.4MW; £300 million portfolio valuation. We have a starting point.

Fast forward
To today, specifically to 28 February 2024 when TRIG announced its full-year results for the year ended 31 December 2023. Helpfully, Chair Richard Morse used his statement to reflect on how far the company has come since its IPO 10 years ago: “The past year marks a decade since TRIG’s IPO in 2013. Our diversified portfolio now has generation capacity of 2.8GW, ten times that at IPO, and can produce enough clean energy to power 1.9m homes and displace 2.3m tonnes of CO2 per annum. The portfolio’s strong, inflation-linked cash flows have supported healthy dividend coverage and enabled TRIG to fund organically the delivery of 300MW of new generation capacity since IPO. This year, robust cash flows were achieved despite the strained macroeconomic environment as interest rates rose to the highest levels during the Company’s history. This macroeconomic backdrop has negatively impacted the share prices of renewables investment companies, including TRIG.”

And the portfolio’s valuation has increased ten-fold too: “The Company’s Net Asset Value as at 31 December 2023 was 127.7p per share (31 December 2022: 134.6p per share) and the Company’s Portfolio Valuation was £3,509m.”

TRIG has come a long way in 10 years.

Fast forward x2
Question is where will TRIG be in 10 years’ time in 2033? Sadly, no crystal ball to hand. Next best thing though, a host of broker comments on the back of the company’s latest results to consult. While the brokers do not attempt to predict what TRIG will look like in 10 years’ time, they do at least provide some useful insights that can help inform a shorter-term outlook for the company.

First a quick overview of the latest numbers courtesy of Winterflood: “Annual results for year to 31 December 2023. NAV per share -5.1% (-6.9p) to 127.7p, driven by lower power price forecasts and higher discount rates. Power prices trended down during 2023 following reductions in gas prices. Since the balance sheet date, forwards for 2024-2026 have further reduced by c.20%. Over a five-year horizon, a 10% reduction in power prices would reduce the fund’s NAV by 2.2p. The weighted average discount rate increased over the year to 8.1% (31 December 2022: 7.2%)…Pro forma portfolio EBITDA was £610m over 2023 (-9.9% YoY) reflecting lower power prices and below budget generation. Generation 6% below budget at 5,986GWh, with some impact from grid downtime in excess of budget allowances, and site-specific factors including repair or enhancement works to improve the operational resilience of generation equipment and electrical infrastructure.”

Winterflood goes on to point out that “TRIG is actively progressing with several further divestment opportunities, with the primary objective of reducing the level of the outstanding RCF…Preliminary offers have been consistent with or above the portfolio valuation. Battery storage is an area of strategic focus, highlighted by recent acquisition of Fig Power, a UK developer with a focus on battery storage systems. The four Spanish Cadiz solar projects reached operations in Q1 2023. Construction has commenced for the Ryton battery storage project in the UK, and development activities continue to progress for the Drakelow battery storage project in the UK and the repowering of five onshore wind projects across France and Northern Ireland.”

No resting on laurels for TRIG after 10 years, it seems – lots still going on at the renewbie.

As for other brokers, below are comments from five other houses:

Liberum is positive: “TRIG’s results were in line with expectations, with NAV performance broadly in line with the peer group during 2023. The sector has been significantly impacted by rising interest rates and lower near-term power prices, although the longer-term outlook has remained fairly stable. The result has been a material de-rating in share prices during 2023, with the sector generating an average TSR of c.-22% and discounts now averaging in excess of 30%. For ratings to improve, interest rates need to start to rollover and the supply/demand imbalance in the market needs to be addressed…Of the 22 trusts in the renewables sector, TRIG are one of the best placed to re-rate in 2024, in our view. The scale, conservative balance sheet, diversification and strong dividend cover mean it is well-placed to survive the current market volatility. We view the 20% discount and 7.3% dividend yield as an attractive entry point for a company with a high degree of inflation linkage and strong track record.”

So too is, Investec: “TRIG currently trades on a material discount to NAV…However, we believe that the market is awaiting confirmation of disposals and for TRIG being closer to a position to undertake share buybacks if the share price continues to remain suppressed. We reiterate our Buy recommendation.”

And Numis: “We view TRIG’s discount of 20% to the latest NAV as excessive given its robust position and scope to continue to deliver attractive levels of capital growth from its asset base and prospective yield of 7.5% as attractive particularly if the fund is able to report some positive news on disposals and reduce the RCF drawings, thereby improving its optionality to react to current markets.”

Jefferies is a holder: “The results are relatively uneventful, with the disposal activity expected during 2024 likely to be much more impactful, particularly given the fund’s greater capital allocation flexibility once a material reduction in the RCF drawings has been achieved.”

While JPMorgan is staying neutral: “…given the size and diversification of the portfolio, and class leading transparency, we remain comfortable with our Neutral recommendation.”

Three positives; two holds/neutrals – on balance a thumbs up for TRIG from the broking community. And a potential trigger for a share price recovery also identified – any positive news on disposal activity that may be forthcoming.

Final word
On TRIG’s outlook goes to the Chair: “…the secular themes of decarbonisation and energy security continue to give us confidence in our strategy and outlook. The deployment and operational performance of renewables assets remains a high priority for governments across Europe. TRIG is well positioned to be at the forefront of the energy transition and our Managers will continue to look for ways to advance our 1GW development pipeline of potential generation and storage capacity, through selective investment to progress TRIG’s strategic priorities and improve shareholder returns. Our balanced portfolio of wind, solar and battery storage projects continue to perform well, deliver inflation-correlated returns, and generate strong operational cash flows with low sensitivity to interest rate movements. By taking a disciplined approach to capital allocation, and with two leading Managers steeped in investment expertise and operational excellence, TRIG is well positioned to build on our strong decade-long track record.”

1GW development pipeline – now that should keep TRIG busy for the next 10 years or so. Chair expecting more of the same then.

A 10-year prediction
Of course, time will tell what the next decade has in store for TRIG. But here’s a 10-yr prediction we can make – chances are that, with a fair wind, sound execution and a wee bit of luck, the title of a Doceo Insights article around March 2034 (specific date to be confirmed) will be something along the lines of: A 20-yr anniversary, the TRIGger for a closer look at The Renewables Infrastructure Group…

A 360 view of the latest results from BBH, MUT, FCIT, MMIT, ATST, GRP, RCP, APAX
Want to know which investment company has generated a 7,800% cumulative total return over the last forty years? Answer in the latest round-up of investment company results and broker commentary…

By
Frank Buhagiar
08 Mar, 2024

Lost its shine of the week
“Anyone familiar with our factsheets will know that we find much joy in the boundless variety offered by the English language. However, the seeking of superlatives to describe the tendency of geopolitics and macroeconomics to throw obstacles into the path of investors lost its lustre long ago.” Bellevue Healthcare (BBH) Investment Manager’s Review.

There is no alternative
Bellevue Healthcare (BBH) Chairman Randeep Grewal gets straight down to performance in his full-year statement: “The total NAV return (i.e. including reinvestment of dividends) over the last financial year was -12.7%. The comparator index (the MSCI World Healthcare total return index in Sterling) produced a total return of -7.1% over the same period; thus, we underperformed by -5.6% over the year.” As the Chairman explains: “The portfolio continues to be exposed to US stocks, particularly in the small / mid-cap area…After a number of decades of falling interest rates, and low inflation expectations, the change in environment seen in the last year or so altered investor preferences and valuations for smaller companies and for those that have future promise or are waiting for inflexion points (whether they be a regulatory approval, widespread adoption, a move to profitability or another catalyst). Our portfolio companies often sit at the intersection of these different elements, so suffer disproportionately when there are headwinds – but hopefully benefit substantially with even a modest tailwind.”

The investment managers are sounding positive though: “Healthcare continues to be the secular growth story of our age.” Why? “Recession or not, there are ever more people and they are ageing. More and more countries are becoming developed economies and scientific progress continues to open up new avenues to relieve the burden of human suffering, raising expectations of what products and services will be available to this ever-greater number of people…The tools, products and services that are enabling the re-imagining of healthcare can be accessed through the public equity realm, creating a persuasive investment opportunity. The past few years may have been very challenging, but the fundamentals remain very attractive.”

Numis writes: “Bellevue Healthcare is managed via an unconstrained, high-conviction approach, with a concentrated portfolio of c.30 holdings of quoted global healthcare stocks…We would expect performance of the fund to deviate from the benchmark over short periods, given the SMID cap bias and concentrated portfolio, meaning the portfolio has little resemblance to the benchmark…Recent underperformance has challenged the fund’s track record, and since inception in December 2016, NAV total returns are 103% (10.3% pa), compared with a return of 127% (12.0% pa) for the MSCI World Healthcare index.”

JPMorgan is overweight: “BBH has traded at a mid-single digit discount to NAV since mid-2022. We think the discount would be wider but for the robust discount controls and these therefore clearly add value for shareholders. While the recent NAV performance has been disappointing relative to the index TR, we think the size focus is a large part of this and note the NAV TR has outperformed a small cap healthcare index. BBH remains differentiated, its managers have stuck to a consistent high conviction strategy and the company has attractive features in the form of the market cap linked fee and discount controls. BBH therefore remains our top pick of the general healthcare focused investment companies. We are Overweight.”

Strong momentum
Private equity vehicle Apax Global Alpha (APAX) posted a 4.1% Total NAV Return (6.1% constant currency) for the year. As Chairman Tim Breedon writes, that means “Over the past five years AGA (Apax) has delivered an average Total NAV Return of nearly 13% p.a. and returned more than €300m in dividends to shareholders. The NAV contribution from both the Debt and Private Equity portfolios against the more challenging economic backdrop of 2023 highlights the strength of the Company’s strategy. With investment activity in Private Equity ramping up in the second half of the year, there is strong momentum across the portfolio, with Apax’s focus on driving performance through operating value creation being well suited in current markets.”

Numis adds: “Performance was driven by earnings growth within the private equity portfolio, offset by lower valuation multiples and currency. Earnings growth of 18.0% was broadly in line with 2022 (18.5%), however revenue growth of 12.1% was notably below 2022 (21.5%). This largely reflects mixed trading across the portfolio, with some weakness in consumer facing companies on the back of softer demand.”

Jefferies is a buyer: “The relatively muted returns reflect the difficult environment for private equity investments during the year. However, looking forward, organic earnings growth continues at a healthy pace, while the portfolio remains primed for an uptick in exit activity. Capital returned via the dividend, in effect, pays shareholders to wait here.”

Liberum is a fan too: “We see good relative value in APAX’s shares, with the debt portfolio and 7.5% yield providing attractive differentiation to peers. While the PE portfolio has underperformed peers on returns since 2022, we note that at a 31% discount to NAV, the shares imply that the private equity portfolio is being valued at a c.43% discount, based on the PE portfolio’s 69% weight in GAV terms and illustratively applying 5% discounts to the debt and cash buckets. This seems too punitive, particularly in light of better momentum more recently.”

Skin in the game of the week
“…our colleagues in our Manager also have significant ‘skin in the game’, with interests in approximately £18 million RIT shares at the year end, reinforcing the close alignment with shareholders’ interests.” RIT Capital Partners (RCP) Chairman Statement.

A more idiosyncratic phase
Final results from RIT Capital Partners (RCP). Chairman Sir James Leigh-Pemberton has the numbers: “Our net asset value per share finished the year at 2,426 pence, representing a total return (including dividends) of 3.2%, lagging our investment hurdles of CPI+3%, which was up 7.0%, and the MSCI ACWI (50% sterling) which rose 18.4%.” Nevertheless “This brings our 10-year performance to 109%, a more than doubling of shareholders’ capital over the period.” As the Chairman explains: “Our investment portfolio is structured around three core pillars of quoted equities, private investments, and uncorrelated strategies. During 2023, the portfolio saw good performance from quoted equities, driven primarily by our successful single stock selection and exposure to Japan. Uncorrelated strategies also made a positive contribution, helped by the outperformance of our credit managers, as well as our investments in carbon credits. However, the value of our private investments softened, reflecting lower valuations of external funds carried over from the fourth quarter of 2022 and our carefully considered revaluation of our direct investments.”

The investment managers add: “Although the percentage allocation across our three pillars may see modest variations over shorter periods of time, our portfolio construction and risk management principles aim to provide shareholders with a diversified portfolio that delivers long-term capital appreciation on an attractive risk-adjusted basis…As the market enters a more idiosyncratic phase, we recognise that careful stock picking and asset selection exercised within our robust risk management framework, will be key to delivering performance.

Comment from Winterflood: “The long-term track record is clearly strong (share price TR +10.6% p.a. and NAV TR +10.5% p.a. since IPO in 1988), and in our view the team is one of the most competent in the sector. Questions have been asked in recent years around the quality of the private allocation, particularly with respect to the presence of venture within a capital preservation vehicle. These results do not dispel the notion that performance from this allocation will remain subdued until IPO markets re-open. Once they do, the portfolio is likely to benefit from its exposure to prime IPO candidates, including Stripe and Databricks. In all, we would be relatively surprised to see the discount hover around the thirties for a prolonged period…noting that the fund traded on a sustained premium in the not-too-distant past.”

Numis sees value: “RIT Capital shares are trading at a c.28% discount to NAV, which we believe offers significant value. We believe the board and management team have been active in addressing some of the issues raised by shareholders, including communication and marketing, and we also believe the active buyback is highly valued by shareholders. We believe that the key for the discount to narrow will be a period of sustained strong NAV performance and activity in the private assets, which will hopefully both provide comfort on valuations and reduce the overall private exposure. The manager has highlighted some interesting areas to generate returns through stock picking/asset selection, in areas such as mid/small cap equities, event-driven equity and value equities, as well as corporate credit markets. Investors will be looking for these to feed through into performance.”

JPMorgan is positive too: “In market cap terms RCP is the largest constituent of the AIC Flexible Investment sector (£2.6bn) and one of its highest quality constituents in terms of management. RCP also has an investment objective which emphasises long-term capital protection and a long-term history of greater participation in market upside vs market downside. We see no reason to change our Overweight recommendation.”

Disciplined allocation of capital
Full-year stats at Greencoat Renewables (GRP) included: “Net cash generation of €196.7 million…(2022: €215.0 million)…delivering gross dividend cover of 2.7x…(2022: 3.2x) with cash revenues increasing by 15% from €330.6 million to €379.2million” and “NAV per share of 112.1 cents (2022: 112.4 cents).” Non-executive Chairman Ronan Murphy adds some colour: “…another positive year for the Company, with continued strong cash generation underpinning dividend cover and providing long-term support for our reinvestment strategy. In deploying more than €500 million into four new assets, we have further diversified the portfolio and increased our generation capacity to 1.5GW across six European markets. Proactive revenue management has enabled us to deliver a number of power purchase agreements confirming that the Company is delivering on its strategy of maintaining a high contracted revenue mix. Despite the continued presence of macro-economic headwinds, the opportunity and investment case for renewables remains strong. The Company remains wholly committed to the disciplined allocation of capital and, with a highly cash generative and pan European portfolio, is well positioned to continue to play a critical role in energy transition, whilst delivering attractive low risk returns for shareholders.”

Comment from Winterflood: “GRP has delivered results in line with our expectations, with net cash generation down -8.5% over 2023 driven by power prices falling from their extreme highs seen in 2022, with the majority of the near-term negative impacts on cash flow mitigated by a high contracted revenue base. Positively, GRP notes good progress on its asset recycling programme, and we are seeing signs of improved liquidity in the market this year, with disposals being key for the fund to ease its current debt burden. Overall, while GRP is currently well positioned from a revenue perspective, with 77% of revenue contracted over the next three years providing support for its target dividend coverage of 2.1x, it currently has the highest aggregate gearing in the Renewable Energy Infrastructure sector at 51% of GAV, and the lowest weighted average maturity of term debt at 3.7 years. In addition, the fund is not screening particularly cheap on a discount basis (22% vs. sector average 24%), and hence we see better value elsewhere in the sector.”

Liberum is positive though: “The strong dividend cover and cash generation in what is a highly contracted revenue model (c.83% of cash flows in 2024) highlights the strength of the portfolio…Gearing, after the four acquisitions in the period was c.51% which is above the 40% long-term assumption but below the mandate limit of 60%. GRP’s use of structural fund-level debt means it is subject to refinancing risk but the risk to valuations is low with IRRs assuming a medium-term cost of debt at c.4.5% (vs current weighted average cost of debt 2.9%) and no refinancing on structural fund-level debt due until October 2025. While the dividend yield lags peers (7.1% vs 7.8% sector average), we view the prudent levered discount rate, exceptional cash cover and high levels of long-term contracted revenue as attractive.”

Jefferies is a fan too: “GRP’s valuation assumptions remain conservative, while cash generation continues to be highly robust, given the degree of contracted revenue, so providing a clear path to reducing gearing.”

Craving of the week
“What we crave, more than anything else, is a bottom-up stock-driven market environment where operationally superior companies outperform poorer ones.” Bellevue Healthcare (BBH) Investment Manager’s Review.

The Company has prospered
Half-year Report from Murray Income (MUT). As Chair Peter Tait writes: “…NAV…per share (with debt at fair value) increased by 4.5%…as compared to the rise of 5.2% in the FTSE All-Share Index…both figures in total return terms. The fair value of the Company’s long-term debt was adversely affected by interest rate movements…which weighed on the Company’s NAV return. The share price total return was 6.2% following a narrowing of the discount from 8.2% to 6.9%.”

Looking ahead, the Chair thinks “…the UK market now looks very cheap compared to its own history and to international markets…” Furthermore, “The anticipation of falling UK interest rates later this calendar year could attract the attention of potential investors, particularly given the appealing combination of a market dividend yield of 4.0% and forecast dividend and earnings growth in 2024, according to a Bloomberg consensus of estimates in January, of 9.2% and 10.1%, respectively, despite the lacklustre outlook for overall economic growth.” And “From a Murray Income shareholder perspective, your starting point is a higher yield of 4.6%, and the shares standing on a 9.5% discount to net asset value…The potential, therefore, for positive returns from owning the Company’s shares is encouraging…Markets can be blown off-course by many exogenous factors…But the Company has prospered over the years through multiple economic, social and political crises. There are many good reasons to believe that it will continue to thrive…”

Investec is a buyer: “The manager focuses on the identification of high-quality companies with robust balance sheets and strong and predictable cash flows that trade on attractive valuations. In a world obsessed with short-term performance, over five years, Murray Income is ranked 8th out of an extended peer group of 90 UK equity income open and closed-end funds. Well documented headwinds, including indiscriminate selling of UK equities have resulted in valuations at a significant discount to historical levels and global equities, and this provides a significant margin of safety. Meanwhile, the discount of Murray Income is close to its widest level for several years, which appears harsh given the performance record. We maintain our Buy recommendation.”

Our active approach
Annual Report from emerging markets investor Mobius Investment Trust (MMIT). In their review, the investment managers were clearly in a reflective mood: “Reflecting on 2023, and the five-year trajectory since MMIT’s inception, the pervasive theme of persistent uncertainty remains a hallmark of our journey…Amidst the challenges facing emerging markets in 2023, MMIT returned 8.5% over the reporting period, outperforming the MSCI EM Mid Cap Index Net TR (GBP) by almost 6.0%. MMIT continued to lead the peer group since inception to the period end, with a return of 49.5%. This performance reflects the strategy’s resilience and adept navigation of uncertainties, and reinforces our commitment to delivering value to our investors.” As for the year just gone, “Strong performance was driven by robust company fundamentals, as well as more broadly by an upturn in the semiconductor industry and cooling global inflation.” And the outlook? “…we believe our active approach to optimising the portfolio, adding high-conviction, asset light ideas and maintaining diversification across geographies and sectors positions us well.”

Numis is interested: “We note Mark Mobius’ retirement from Mobius Capital Partners…We believe that Mark Mobius’ departure, whilst high-profile, should not be a cause for concern for investors…There will be no change in investment approach, in which the manager seeks to buy companies at a discount to intrinsic value; and to catalyse a re-rating through active engagement. We believe Mobius IT is an interesting fund for investors seeking exposure to mid and small caps within Emerging Markets. The portfolio is concentrated, comprising of 20-30 holdings (currently 27) across emerging and frontier markets which bears little resemblance to the index (98% active share). As a result, we would expect performance to deviate from the market over short periods.”

Pleasant surprise of the week
“2023 was a surprisingly positive year for financial markets…” Alliance Trust (ATST) Chairman Statement.

Strong
How Chair Dean Buckley described Alliance Trust’s (ATST) full-year returns: “In a volatile market environment, Alliance Trust reported strong returns, outperforming the MSCI ACWI and most of its peers in the Association of Investment Companies (’AIC’) Global Sector.” As for the numbers “…NAV…Total Return of 21.6% was significantly higher than the 15.3% return from our benchmark, the MSCI All Country World Index (’MSCI ACWI’)…These results extend the Company’s long-term track record of attractive outright gains and relative performance. In a highly concentrated market, it was reassuring to note that the driver of the Company’s outperformance in 2023, was the broadly-based, skilled stock picking approach, rather than the result of any significant style, country, or sector biases.” What’s more: “…this year also marks the 57th consecutive annual dividend increase, a track record which is one of the longest in the investment trust industry, and one which the Board is confident can be extended well…”

And the Chair believes there’s more to come: “…every market environment produces winners and losers, and we are confident that our diversified but highly selective approach to stock picking will continue to add value for shareholders.” That’s because: “Alliance Trust’s innovative multi-manager investment strategy has already demonstrated strong performance through a variety of market conditions and the Board believes it can continue to build on that track record in the coming years.” Comment from the investment manager: “In 2023, our fund managers demonstrated that, collectively, they can add significant value despite a challenging macroeconomic backdrop. We remain confident that they can continue to do well by selectively investing in companies with strong fundamentals rather than following short-term trends that often drive indices. We, in turn, will continue to dynamically manage the stock pickers and their allocations in the light of evolving market conditions to ensure the portfolio strikes a comfortable balance between reward and risk. They will seek the rewards; we will manage risk.”

Numis points out: “Alliance Trust’s target for the equity portfolio is to outperform the MSCI AC World index by 2% pa (net of costs) over rolling three-year periods. Over the last three years, the fund has delivered a NAV total return of 39% (11.6% pa), outperforming the MSCI AC World index, which returned 35% (10.4% pa) over the same period although slightly underperforming its targeted performance level. We believe the concept of investing in the top 20 stock picks from a range of leading managers via a low-cost vehicle is appealing and note the improved recent performance of the fund.”

Our long-term focus
Annual Report from F&C Investment Trust (FCIT). As Chair Beatrice Hollond writes: “The Company produced a strong NAV total return in absolute terms of +11.3% but underperformed the total return from our benchmark of +15.1%…Following a challenging year for markets in 2022 when we had delivered the strongest shareholder return amongst our peer group of global investment companies, in 2023 our return slightly lagged those peers…We delivered strong absolute performance from most of our underlying strategies, most notably European equities, but under exposure relative to our benchmark index to some of the very largest stocks in the market in several of our US and global strategies led to modest underperformance against our benchmark index within our listed equity portfolio. Meanwhile, our private equity holdings, in aggregate, lost value over the year and produced returns well behind those of listed equivalents.”

The Chair continues: “There remains uncertainty with respect to the near term economic and political outlook and we expect an element of volatility in both bond and equity markets as inflation and interest rate expectations adjust over 2024 and as investors assess the implications of fast-evolving trends in AI and technology. Nonetheless, we remain confident that our long-term focus and diversified approach will continue to serve shareholders well in terms of pursuit of our objective of delivering growth in capital and income.”

Numis notes: “The results to December show a period of decent absolute (11.3%), but relative underperformance versus the benchmark (15.1%) as a bias towards value stocks at the start of the year, and strong performance of mega-cap tech were a drag, as well as the private equity portfolio, which delivered negative returns. F&C IT (£5.0bn market cap) has a more diversified portfolio than its peers and is differentiated by its private exposure. The fund’s track record under Paul Niven (since June 2014) is solid, returning 191.6% (11.6% pa) during his tenure, slightly lagging the FTSE AllWorld total return of 200.8% (11.9% pa).”

Performance stat of the week
“Although it is not our primary comparator index, since the FTSE 100 index was launched in 1984 your Company has delivered a cumulative total return of approximately double the return of this index, with a gain of over 7,800% over the forty-year period, equivalent to 11.6% total return per annum.” F&C Investment Trust (FCIT) Chairman Chair Beatrice Hollond.

ByFrank Buhagiar 04 Mar, 2024

BARGAIN BASEMENT
Discount Watch: 20
Our estimate of the number of investment companies whose discounts hit 12-month highs (or lows depending on how you look at them) over the course of the week ended Friday 01 March 2024 – three less than the previous week’s 23.

13 of the 20 were on the list last week: Aquila Energy Efficiency (AEET) and Downing Renewables & Infrastructure (DORE) from renewable energy infrastructure; LMS Capital (LMS) from private equity; Life Science REIT (LABS) from property; BlackRock Sustainable American Income (BRSA) from North America equity income; Menhaden Resource Efficiency (MHN) from environmental; Pacific Assets (PAC) from Asia Pacific; Lindsell Train (LTI) from global; Baillie Gifford Shin Nippon (BGS) from Japanese smaller cos.; Templeton Emerging Markets (TEM) from emerging markets; NB Distressed Debt (NBDD) from debt; City of London (CTY) from UK equity income; and Hipgnosis Songs (SONG) from music royalties.

That leaves seven new names: Jupiter Green (JGC) from environmental; Henderson International Income (HINT) from global equity income; Shires Income (SHRS) from equity income; JPMorgan Emerging Assets (JMG) from emerging markets; Digital 9 Infrastructure (DGI9) from infrastructure; and Schroder European Real Estate (SERE) and AEW UK REIT (AEWU) from property.

ON THE MOVE
Monthly Mover Watch: new week
New leader at the summit of Winterflood’s list of top-five monthly movers in the investment company space – SDCL Energy Efficiency Income Trust (SEIT) thanks to a 23% gain on the month. The shares have been on something of a tear ever since the company put out a three-pronged update on 5 February: 1. renewal of a long-term energy supply contract; 2. in line Q4 2023 operational cashflows across its projects; and 3. receipt of “a number of credible proposals” that could lead to the sale of some of the company’s assets.

Not far behind in second with a 22.3% gain, another renewable energy infrastructure fund – Gresham House Energy Storage (GRID). Shares responding well to a series of director purchases and buybacks over the last month.

Small gap between GRID and third-placed Weiss Korea Opportunity Fund (WKOF) – shares are up 13.9%. Not much in the way of news aside from a monthly factsheet, although the unveiling by the South Korea Financial Services Commission of a “Corporate Value-up Program” could well have helped – the programme is looking to boost shareholder returns across the market via a series of incentives.

In fourth, last week’s top co., Chrysalis (CHRY). The monthly gain may have shrunk from +19.7% to +13.3% but speculation that one or two of its holdings might IPO this year including Klarna just refuses to die down.

Finally, a Return of Capital by way of a Partial Compulsory Redemption of Shares good for a 10.9% share price increase at NB Global Monthly Income (NBMI).

Scottish Mortgage Watch: +5.9%
How much Scottish Mortgage’s (SMT) share price has increased over the past month – just over double last week’s +2.7% monthly gain. NAV moved in the opposite direction – an +8.1% gain on the month turned into +6.4%. The wider global IT sector largely held steady, finishing the week up +4.8% compared to +4.9% seven days earlier.

THE CORPORATE BOX
Raise Watch: £907 million
The amount raised by warehouse landlord SEGRO (SGRO) via a Placing and Retail Offer: “The Placing Price of 820 pence represents a discount of 3.4% per cent to the closing price on 27 February 2024, which was 849 pence.” As for the proceeds, these “…will allow the Group to pursue additional growth opportunities, including new and existing development projects and to take advantage of potential acquisition opportunities which may arise, whilst maintaining a strong balance sheet.”

Share Buyback Watch: £50 million
The size of HICL Infrastructure’s (HICL) share buyback programme: “The HICL Board continues to observe a material disconnect between public market valuations and private market transactions for inflation-correlated core infrastructure, as demonstrated by the c. 30%…disposal premium achieved on Northwest Parkway…the Board therefore intends to allocate up to £50m…towards a share buyback programme. Repurchasing shares will provide shareholders with the benefit of NAV accretion, and will also help to reduce share price volatility. The Board intends to commence the programme in due course with the programme to run for a period of up to twelve months.”

Investment Manager Buy Watch: abrdn UK Smaller Companies Growth (AUSC)
Over to Chair Liz Airey: “The Board notes the announcement by abrdn plc in December that it was initiating a programme whereby it would invest six months’ worth of the management fees paid to it by the investment trusts it manages in buying shares of those trusts. We are pleased to welcome abrdn as a shareholder.”

Dividend Watch: 45 years
The number of successive years Law Debenture (LWDB) has increased/maintained its dividends: “…the consistent and reliable cash flows from our diversified IPS business have helped ensure that we can continue our strong dividend record…we propose paying a final dividend of 9.125 pence per ordinary share…This will provide shareholders with a total dividend of 32 pence per share for 2023, an increase of 4.9% compared with 2022. This represents a dividend yield of 4.1% based on our closing share price of 778 pence on 23 February 2024. Over the last 10 years, we have increased the dividend by 113% in aggregate which ranks Law Debenture very high versus its key sector peers.”

19 – the number of years in a row Murray International (MYI) has increased its dividend: “Your Board is recommending an increased final dividend of 4.3p per Ordinary 5p share (2022: 4.0p as restated)…If the final dividend is approved, the total Ordinary dividend for the year will amount to 11.5p (2022: 11.2p as restated), an increase over the previous year of 2.7%. This represents the 19th year of dividend increases for the Company, which remains an AIC ‘Next Generation Dividend Hero’.”

New to investing? I’d follow these 5 steps to target a £20,628 yearly second income

Story by John Fieldsend

The Motley Fool

I remember when I was new to investing. I had no idea where to start or what to do. I put it off for ages. My dithering cost me tens of thousands, looking back. That’s money I could have put towards building a second income.

How I’d target that £20k+
I wish someone had told me to just get started. Once someone starts investing, the money (hopefully) starts to compound and grow. “Time in the market”, as they call it. The longer I wait without investing, the more it costs me.

If I started today, I’d follow these steps for a healthy passive income. I could even target £20,628 a year. Here’s how, step by step.

My first step is a simple one. I need to open an account. One thing we do right in the UK is our ISA accounts. These ISAs – individual savings accounts – are perfect for investing in stocks. Why? Because they offer amazing tax advantages.
Why I need to invest
If I invest in a Stocks and Shares ISA, I avoid both dividend tax and capital gains tax. I can deposit up to £20k a year and avoid these taxes. Sadly, that’s around £1,667 a month. I doubt many of us have that much left at the end of the month, but any amount is worthwhile.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Once I’ve got my account, my second step is to put some money in.

But it’s clear the savings don’t amount to very much on their own.

So the next step is to invest. What kind of return could I expect from this? Well, the next table shows a few ideas.

I’d aim for a £500k net worth

The FTSE 100 and FTSE 250 are both in the UK and make up the top 350 listed companies here. The S&P 500 is the closest equivalent in the States. The MSCI World Index is another. This one is like a worldwide average for stocks. All have historically offered decent returns.

And remember, I’d look to start as soon as possible. I want this compounding to work for me straight away. This is how I could make the big money.

Next comes my fourth step. Here I’d let my investments grow. Let’s look at what a flat 10% does.

Those percentages might look small, but they add up. And the returns compound, with the amount possibly getting very big over time. The next graph shows what that looks like.

New to investing? I’d follow these 5 steps to target a £20,628 yearly second income

And remember, I’d look to start as soon as possible. I want this compounding to work for me straight away. This is how I could make the big money.

Okay, now we’re cooking with gas. These returns look very impressive. But I’m after a second income here, so how do I get it?

One important risk
Well, with stocks I have two options. I can sell off part of my portfolio. I withdraw that and it’s my income. The other way is to invest in stocks that pay dividends. These payments go straight into my account from a company’s coffers.

With either method, a 4% return is usually considered a safe amount to withdraw without depleting my nest egg. Here’s what that would look like for the above values.

Looks good to me! Although I’ll end on a cautious note.

I’m looking at past returns here as that’s all anyone’s got to go on. But the future is unpredictable. Stocks might not be as lucrative as they were in the past. This is a risk all investors must be wary of.

Buy dividend Trusts based on their yield and their history of paying gently increasing dividends.

A 7% yield compounded at 7% doubles your money in ten years.

Get Rich Slow.

KISS