Ian Cowie: UK trusts aren’t cheap, so here’s what I’m backing

Our columnist explains why he’s focusing on the hot topic of renewable energy rather than eyeing potential discount opportunities among UK equity investment trusts.

by Ian Cowie from interactive investor

Next Monday’s UK International Investment Summit will see Prime Minister Keir Starmer pitch for more foreign funds to back British businesses. Fortunately, many London-listed investment trusts already make it cheap and convenient to obtain exposure – but one of the most interesting does not contain the words “British” or “UK” in its title.

For example, consider the hot topic of renewable energy. Not many people now remember Boris Johnson’s brief enthusiasm for turning Britain into “the Saudi Arabia of wind”. 

Back then – and now – the problem with renewable power is how to keep a modern economy warm and in work when the wind won’t blow and the sun don’t shine. Industrial-scale batteries, such as those operated by specialist investment trusts including Gore Street Energy Storage Fund Ord 

GSF

1.08%

 and Gresham House Energy Storage Ord 

GRID

0.00%, provide short-term solutions but in my view not long-term answers to the difficulty of balancing energy demand and supply.

Pumped storage hydropower (PSH) can utilise gravity in hilly or mountainous regions with plenty of water – such as Scotland or Wales – to store energy over any length of time. When renewable electricity from wind or solar sources is plentiful, it is used to pump water from a low-level loch or lake to a higher-level reservoir. Then, when renewable power is scarce, gravity is allowed to draw the water down through dynamos to generate sufficient electricity to supply demand.

The technology has been in use for decades, with Britain’s four PSH facilities in Scotland and Wales delivering up to 2.8 gigawatts (GW) of electricity whenever needed. But capital costs are high – digging tunnels inside mountains don’t come cheap – and there are environmental concerns about disrupting or even destroying wildlife, such as salmon.

Even so, ways can be found for PSH to deliver cleaner, greener power than alternative sources such as coal, liquefied natural gas (LNG) or oil. Jean-Hugues de Lamaze, fund manager of the self-descriptive investment trust Ecofin Global Utilities & Infra Ord 

EGL

1.30%

“As the world is turning to renewables to decarbonise, storage is becoming critical – and therefore increasingly valuable – to bridge intermittency and seasonality.

“Pumped hydro is currently the main storage source with about 90% of global capacity, according to the International Hydropower Association. There aren’t any concentrated large, stock market-listed pumped hydro companies in Europe, but several energy utilities own PSH assets.”

De Lamaze added: “Iberdrola is a leader in pumped storage with 4.5GW of installed capacity in Spain and Portugal and the ambition to invest another €1.5 billion in storage over the next two years.

“SSE is developing the fully consented Coire Glas project in the Scottish Highlands – Britain’s biggest pumped hydro scheme in 40 years – which would more than double Britain’s current storage capacity.”

That extra PSH could go a long way to avoid excess electricity being earthed – or, essentially, thrown away – when there is too much wind and demand falls far short of supply.

Not that such problems have prevented Greencoat UK Wind 

UKW

0.29%

 from topping the Association of Investment Companies (AIC) “Renewable Energy Infrastructure” sector over the past decade and five-year periods with total returns of 128% and 30% respectively, followed by 15% over the past year. UKW generates 7.1% dividend income, which has risen by an annual average of 8.1% over the past five years but remains priced -12.3% below the net asset value (NAV) of its £4.7 billion assets.

Meanwhile, EGL has generated total returns of 35% over the past year and 48% over five years but lacks a 10-year record, as it was launched in September 2016. Income-seekers may also note its 4.2% dividend yield, which independent statisticians Morningstar calculate has increased by an annual average slightly above 4% over the past five years. Even so, shares in this fund with total assets of £276 million continue to be priced nearly -13% below their net asset value (NAV).

To put those numbers in perspective, it is notable that the AIC’s “UK Equity Income” sector currently offers similar average income – 4.1% – albeit rising more slowly by 3% per annum – and with a much smaller average discount of -5.4%. Nor do the AIC’s ‘UK All Companies’ or “UK Smaller Companies” sectors look terribly cheap on average discounts both currently around -11%; yielding 3% and 2.9% dividend income respectively.

No doubt Starmer will put a more positive spin on British bargains at next week’s UK International Investment Summit. Let’s hope this prime minister’s enthusiasm for renewable energy in general –  and PSH in particular – proves longer lasting than that of his predecessor, Boris Johnson.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Ecofin Global Utilities and Infrastructure (EGL) and Greencoat UK Wind (UKW) as part of a globally diversified portfolio of investment trusts and other shares.

 VH Global Sustainable Energy says Alliance Witan acquired 12.23% voting rights on Wed

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TrustNet

Stick to your plan, thru thick and thin, there will be plenty of thin as the table above shows.

UNDERSTANDING INFLATION RISK

It’s very important to take into account inflation risk with an annuity. An annual income of £7,200 might sound attractive now, but it will gradually lose its buying power. After 20 years of 2% inflation that £7,200 would effectively be worth just £4,800. It’s possible to buy an annuity which rises each year in line with inflation, but they start at a much lower level. Currently this would be around £4,500 for a 65-year-old. This is a significant drop, but if you’re concerned about the security of your income, then protecting it from inflation will also likely be high on your list of priorities. There are other protections you can build into an annuity, such as a spouse’s pension, or a guaranteed payment period, but again these will reduce the starting value.

You may be able to get a boost to the annuity as a result of health or lifestyle conditions, such as diabetes, elevated cholesterol levels, or being a smoker. Of course, the higher income the insurance company is willing to pay in these circumstances is based on a higher statistical likelihood of an early death, so even here it’s worth considering the total value of all the payments that might be made.

Annuities are unlikely to recover their former glory, mainly because they look so inflexible compared to the other options now on offer. But retiring pension savers should at least consider the pros and cons. It’s also worth remembering you can take out an annuity with some of your pension while keeping the rest invested. This mix and match approach might help you hit the perfect blend of security, flexibility, and growth.

AJ BELL

Including the current xd shares the income for 2025 is £9,154.00, which beats the target and therefore the fcast.

There are four more portfolio Trusts to declare a dividend for this year, although some of the payments may slip into next year. With the target for this year already achieved, that would be a good boost for next year’s figures.

A variable yield of around 5.5%, an ETF so no discount to NAV to consider. Could be pair traded with a higher yielder.

Here’s how I’d regularly invest £300 to target £2,000 of monthly passive income

Investing in shares, trusts and ETFs can be a great way to build long-term wealth. Here’s one way I could target a healthy passive income today.

Posted by

Royston Wild

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. MotleyFool

UK shares have long been a popular asset class for those seeking passive income. Thanks to products like Individual Savings Accounts (ISAs) and Self-Invested Personal Pensions (SIPPs), individuals can boost their dividend income by not having to pay a penny in tax either.

These tax-efficient products have large annual allowances. The ISA limit is £20,000, while SIPP holders can typically invest the equivalent of their yearly earnings (up to a maximum of £60,000).

However, investors don’t have to invest anywhere near this much to eventually become financially independent. Here’s how just a few hundred pounds a month could eventually generate £2,000+ in passive income

Compound miracles

A modest regular investment can turn into a large pot over time thanks to the power of compounding. By reinvesting earnings, my investment grows not just from the original amount but also from the accumulated returns. This creates substantial growth over the long term.

With this in mind, what could I make if I regularly invested £300 a month? Here’s an idea based on different rates of return and investing timescales.

	5%	7.5%	10%
10 years	£46,584.68	£53,379.10	£61,453.49
20 years	£123,310.10	£166,119.22	£227,810.65
30 years	£249,677.59	£404,233.63	£678,146.38

History shows us that all of these rates of return are possible by investing in global shares. But none of that’s guaranteed and I could lose money as well as making it.

But let’s take into account the middle figure of 7.5%. This is around the long-term average of FTSE 100 shares since the index was created in 1984.

With an investment pot of £404,233.63 after 30 years, I could shift my focus towards dividend-paying stocks to target a regular income.

Assuming I could achieve a 6% dividend yield, I’d earn £24,254 a year, which translates to just over £2,000 a month (£2,021, to be exact).

Where to invest?

Investors have thousands of shares to choose from in the UK and overseas. This makes building a diversified portfolio that provides a stable and decent over time much easier.

But instead of picking individual shares, investors can also choose from a number of investment trusts and exchange-traded funds (ETFs) to achieve the same goal.

These financial vehicles spread their pooled capital across a variety of assets — and in some cases across asset classes — to reduce risk and capitalise on different growth opportunities.

With this in mind, I might want to invest in a FTSE 100 tracker fund to target that 7.5% average annual return. The one I’d probably choose is the iShares Core FTSE 100 UCITS

There are many funds like this on the market today. But with a total expense ratio of just 0.07%, this is the most cost-effective one right now.

FTSE 100 trackers like this provide exposure to blue-chip companies with market-leading positions, diverse revenue sources and robust balance sheets. And with a wide selection of constituents including banking giant Lloyds, drugmaker AstraZeneca and miner Rio Tinto, I can enjoy exceptional diversification.

Past performance is no guarantee of future returns. And a lack of appetite for UK shares could impact how much I make from the fund in the coming decades.

But with investor appetite for British stocks recovering, I think this ETF could be an excellent way to target long-term wealth, alongside my portfolio of individually selected shares.

££££££££££££

If u buy a tracker, as long as u can choose when to sell u will not lose any of your hard earned. The tracker may fall for several years with the market but could be a home for dividends if u can’t re-invest at a 7% yield. Not as safe as receiving dividends but an option if u are in your accumulation stage.