Ian Cowie looks at a shaken but high-yielding investment trust sector.
24th April 2026
by Ian Cowie from interactive investor
Wars in the Middle East and Ukraine dramatically demonstrate the importance of energy self-sufficiency by squeezing Britain’s traditional supplies of oil and liquefied natural gas (LNG).
But this week the government reacted to rising demand for renewable energy from our own wind and solar sources by imposing yet another tax hike on this sector.
No wonder City cynics say there is no situation so bad that political intervention cannot make it worse.
On a brighter note, several investment trusts focused on renewable energy infrastructure now yield double-digit income while trading at even bigger discounts to their net asset value (NAV).
The average of 17 funds in this sector now pays dividends equal to 10.5% of their share price, which is an eye-stretching 32.4% below their NAV.
So, investors brave enough to bet that government bungling cannot go on forever are being well paid to be patient optimists.
More intervention?
Less happily, the recent history of governments talking renewables up while taxing them down is not encouraging.
This week the energy department proposed increasing a tax called the Electricity Generators Levy from 45% to 55%.
It also wants to introduce Fixed Price Contracts (FPCs), switching away from Renewable Obligation Certificates (ROCs) to Contracts for Difference (CfDs). Do try to keep up.
Never mind all the acronyms and jargon, Iain Scouller, an analyst at the wealth manager Canaccord Genuity, pointed out: “This is the third piece of tinkering with investors’ returns in under six months.
“We had the switch from Retail Prices Index (RPI) to Consumer Prices Index (CPI) inflation indexation at the end of last year. Last week saw the removal of UK Carbon Price Support, with the resultant projected reduction in power prices and lower NAVs.”
So, what ought to be a straightforward renewable energy strategy to keep Britain’s lights on, without depending on dictators in Russia or the Middle East for oil or LNG, turns out to be heavily dependent on the varying whims of our own politicians. Perhaps we should not be surprised to see subsidies cut and taxes hiked.
However, market forces – in the form of reduced supply and relatively fixed demand forcing up prices – may prove more powerful than political interference. Markuz Jaffe, an analyst at the broker Peel Hunt, said: “Higher power prices typically have a positive impact on the revenues of renewable energy generators.
“Investment trusts in this sector also benefit from higher inflation-linked subsidies, such as ROCs, or remuneration mechanisms, such as CfDs, which adjust for the latest potentially higher inflation data.”
Higher prices as a headwind
As a result, investment trusts in this sector could benefit from what would be bad news for most companies; such as higher energy prices and inflation.
Put another way, this out-of-favour sector might be inversely correlated with most other assets and offer valuable diversification for a balanced portfolio in future, as well as dividends now.
Setting aside the generalities, what about the specifics?
is the Association of Investment Companies (AIC) Renewable Energy Infrastructure sector leader by share price total returns over the last five years and decade, with a dividend yield of 10.5% after raising shareholders’ pay by an annual average of 7.8% over the last five years.
It is important to understand that dividends are not guaranteed and can be cut or cancelled without notice. However, if UKW could sustain its current rate of ascent, shareholders’ annual income would double in less than a decade.
Against all that, the capital performance of this £3.9 billion fund has fallen off sharply; largely for the reasons described above.
UKW generated total returns of 68% over the last decade, before a meagre 9.3% over five years, followed by a loss of 0.3% over the last year. Seen in that light, its share price trading 26% below NAV is not surprising.
Worse still, the Conservatives and Reform are even more critical about wind power than Labour, which at least pays lip service to this sector.
Scouller commented: “Looking forward, there is obviously significant political risk to renewables such as any new CfD schemes after the next UK general election, due within three years.
“While investors want certainty, we are seeing continual tinkering by government. There is a risk that some private wealth managers will take the view that this sector is uninvestable, given continual changes.”
Here and now, while I hold UKW in my ISA for tax-free income, political risk is the reason I prefer to have more of my money invested in Ecofin Global Utilities & Infra Ord EGL
This global fund is now the fifth-most valuable asset among 57 shares in my forever fund.
EGL offers exposure to renewable energy, as well as fossil fuel producers and distributors, to generate total returns of 81.5% and 48% over the last five year and one-year periods.
This £266 million fund is due to celebrate its first decade in its current format next September, after formerly trading as Ecofin Water and Power Opportunities (EWPO), where I first invested in March 2011. The current yield is just over 3% rising by an annual average of 5.2% over the last five years.
Many debates about the advantages and disadvantages of fossil fuels versus renewable energy generate more heat than light. Perhaps the most investors can hope for is less political interference in future.
Ian Cowie is a freelance contributor and not a direct employee of interactive investor.
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