I’ve bought for the Snowball 1586 shares in ORIT Octopus Renewables for 1k.
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Or why the Snowball only invests in Investment Trusts and ETF’s
How’s how someone could start buying shares with 5% of their salary
Is it possible to start buying shares with one twentieth of one’s earnings? This writer explains how a would-be investor could aim to go about it.
Posted by Christopher Ruane
Published 4 October
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.
The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services.
Sometimes people who want to start buying shares can feel as if they might never get the chance. So many other spending priorities can pop up in life.
That is why I think it can make sense to target a specific, manageable part of one’s income for investing.
Setting a regular contribution level
How much that is will depend on an investor’s own circumstances.
Different people have different salaries – and different outgoings. For some, buying shares may be a high priority. For others, it may be something they only do on a very small scale.
In this example, I imagine someone puts 5% of their salary away each month to start buying shares and then build a portfolio over the long term.
How much that is depends on how big the salary is (and whether the person sticks to their good intentions!). It may also be that, over time, they decide to invest a higher or lower proportion of their earnings.
But I think setting a regular goal can help to build wealth over the long term, as it can lay the foundations for building a share portfolio.
Getting ready to invest
That money needs to be put into some sort of investment account. A helpful early step could therefore be comparing options for a share-dealing account, Stocks and Shares ISA, or dealing app.
While getting to grips with the nuances of the stock market is a long-term project, more pressingly I think a new investor needs at least to get to grips with key concepts like valuation and risk management before putting their hard-earned cash at risk.
Looking for quality businesses with attractive share prices
Each investor has their own approach to deciding what to buy.
Like billionaire investor Warren Buffett, I aim to buy shares in great businesses when they are selling for an attractive price.
An example of a share I have been buying lately is B&M European Value (LSE: BME).
A quick look at its share chart shows that not all investors over the past several years have shared my enthusiasm.
A chunky dividend looks attractive (and will hopefully generate passive income for me while I own the shares), but dividends are never guaranteed.
Indeed, one error some people make when they start buying shares (and sometimes beyond) is getting excited by the prospect of a dividend without asking themselves how sustainable the payout may be, based on their assessment of the company’s business prospects.
B&M has its challenges. Lately its sales of fast-moving consumer goods have been disappointing. That highlights the risk of a wider slowdown in other product categories too.
But I see a lot to like here. The company is well-known and, in a weak economy, its discount proposition may look attractive to even more shoppers. It has a large estate of shops, has been growing sales overall, and benefits from a sizeable pool of regular shoppers.
The B&M share price has just tanked. But look what’s happened to the stock’s yield
Following another profit warning today, the B&M share price fell sharply. But it’s helped push the retailer’s yield well into double figures.
Posted by James Beard
Published 20 October, 12:13 pm BST
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.
The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.
It’s been a bad morning (20 October) for the B&M European Value (LSE:BME) share price. By 10am, the group’s shares were worth 17% less than they were at the start of trading. That came after the discount retailer issued another profit warning for the 52 weeks ending 28 March 2026 (FY26). It also announced the departure of its chief financial officer.
What’s going on?
It’s the group’s second profit downgrade in less than three weeks. This time it said it had identified “approximately £7m of overseas freight costs not correctly recognised in cost of goods sold, following an operating system update earlier this year”.
Should you buy B&M European Value shares today?
The group started FY26 expecting adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) to be around £620m. Following weaker-than-expected sales, it reduced this to £510m-£560m. Today, based on “revised second-quarter margin run rates”, it’s cut this estimate to £470m-£520m.
For the second half of the year, it’s forecasting UK like-for-like sales to grow at between “low-single-digit negative and low-single-digit positive levels”. As we’ve seen, the difference between these two outcomes is worth £50m of EBITDA.
The announcement continues a sad decline for the group. It was ejected from the FTSE 100 in December 2024 having joined for the first time in September 2020. Since then, its share price has fallen 51%. But it doesn’t have to be like this. Frasers Group, another retailer, fell out of the Footsie on the same day. Its shares are now worth 10% more.
A huge yield
One positive outcome from the falling share price is that the stock’s now yielding 16.8%. This is based on amounts paid over the past 12 months. Of course, with earnings coming under pressure, this could lead to a cut in the dividend.
And based on its past four financial years, it’s difficult to predict what its future dividend might be. As well as making interim and final payouts each year, the group’s recently paid a series of special dividends.
| Period | Interim (pence) | Special (pence) | Final (pence) | Total (pence) |
|---|---|---|---|---|
| FY22 | 5.0 | 25.0 | 11.5 | 47.5 |
| FY23 | 5.0 | 20.0 | 9.6 | 34.6 |
| FY24 | 5.1 | 20.0 | 9.6 | 34.7 |
| FY25 | 5.3 | 15.0 | 9.7 | 30.0 |
Source: Hargreaves Lansdown
Can it recover?
On the face of it, the group has lots going for it. It’s a familiar face on the country’s high streets and retail parks. It has 1,130 stores in the UK, trading under the B&M and Heron Foods brands, and 140 units in France.
And its shops always seem busy to me. With disposable incomes remaining under pressure, it’s in a good position to capitalise with its low-cost offer.
As part of its turnaround plan, the group’s embarked on a ‘Back to B&M Basics’ strategy, which includes further price cuts, giving greater autonomy to managers to introduce ‘specials’, reducing stock lines and improving product availability. This all makes sense to me. However, it will take up to 18 months for the full impact to be felt.
But the group continues to face some possible challenges. There’s speculation that the Chancellor’s looking to shift more of the burden of commercial rates away from smaller shops to larger ones. And persistent supply chain inflation could eat away at its gross profit margin.
At the moment, there’s too much uncertainty surrounding the group’s numbers to make me want to invest. But like most retailers, Christmas is a crucial period for B&M. I shall therefore revisit the investment case once I know how it’s performed over the festive season.
If you invest, one day you will buy a clunker, how you deal with that, will determine how successful you will be.
Underlying Earnings and Dividends
The Underlying Earnings for the Year, before repayments, were £95.3 million, or 16.0pps, and underlying cash available for distribution, post debt repayments of £33.5m or 5.6pps, were £61.8 million or 10.4pps. This has enabled the declaration of a fourth interim dividend of 2.30pps, bringing the total dividend for the Year to 8.90pps (Prior Year: 8.80pps). Once again, the total dividend for the Year has been covered by earnings. The yield on our shares – based on a share price of 83 pence on 17 October 2025 – is 10.72%. The Board has set a target dividend for the year ended 30 June 2026 of not less than 9.00pps, which extends our long record of progressive increases.
The AGM
The Company’s Annual General Meeting will take place on 11 December 2025 at Floor 2, Trafalgar Court, Les Banques, St Peter Port, Guernsey. Shareholders who are unable to be present in person are encouraged to submit questions in advance of the meeting.
Strategic considerations
There is a plausible future for BSIF in continuing to operate under its existing business model without the need for new capital, while continuing to pay a sector-leading dividend – the “business as usual” option. But Shareholders need to be aware that, in the absence of access to additional equity and the cheap debt we enjoyed for many years, continuing to operate with the current capital structure will necessitate the sale of development and prospectively operational assets. Such disposals will gradually starve the Company of growth opportunities and confine BSIF to its current position, namely the steady erosion of the Company’s NAV, reflecting attrition of our capital base, with returns delivered only in the form of income.
Our market engagement process over the last few months makes it clear that there is widespread confidence in the future of solar power. What is also clear to your Board is that greater value is placed on a more integrated business that brings together BSIF’s operating portfolio with its sizeable near-term development pipeline, coupled with the proven development and operating capability that exists within the Bluefield Group.
The Board is therefore considering other paths for the future of BSIF, including options that could see it move towards a more integrated business model which is better placed to capture the growth opportunity that eludes Shareholders in the Company’s current form, but is more readily available in an integrated Bluefield model. On the basis of initial discussions with the owners of the Bluefield Group, it would appear to be a model which is attractive to both BSIF and its Investment Adviser. Integrating the Bluefield Group’s 140 person platform, covering development activities through to operations, would create a UK-focused green Independent Power Producer, one that with the appropriate capital structure, corporate debt and dividend policies could be a largely self-funded growth model. This would enable the Company to build out its valuable and return-accretive development pipeline and deliver what the Board expects to be a materially higher total return to Shareholders than has been possible under the Company’s current business model and dividend policy. This transition would require a re-examination of our capital structure and dividend policy as we examine the proportion of our net income that we would be able to distribute if we are to fund our pipeline from retained earnings and additional borrowings.
Thursday 23 October
Aberdeen Asian Income Fund Ltd ex-dividend date
abrdn Property Income Trust Ltd ex-dividend date
Bankers Investment Trust PLC ex-dividend date
City of London Investment Trust ex-dividend date
CQS New City High Yield Fund Ltd ex-dividend date
Doric Nimrod Air Three Ltd ex-dividend date
Pacific Horizon Investment Trust PLC ex-dividend date
Strategic Equity Capital PLC ex-dividend date
Supermarket Income REIT PLC ex-dividend date
| https://22Betcasinoca.wordpress.com/ 22Betcasinoca.wordpress.comx justinekoenig64@sales.muzaco.com 50.3.167.156 | I do not drop many remarks, but i did a few searching and wound up here The Snowball – Passive Income. And I do have a couple of questions for you if you tend not to mind. Is it only me or does it give the impression like some of the responses look like left by brain dead folks?  And, if you are writing on other sites, I’d like to follow anything new you have to post.Would you make a list of all of all your communal sites like your Facebook page, twitter feed, or linkedin profile? |
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I only post here, no plans to post anywhere else but I am considering writing an e book with examples of how I achieved a 12% yield well ahead of target, with all sales and purchases posted at the time of the trades.
With £5,000, here’s how to create a second income from UK property without buy-to-let
Want to earn a second income from UK property but don’t have the money for buy-to-let? Here’s another way to start building a real estate empire!
Posted by Zaven Boyrazian, CFA
Published 19 October
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.
The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more.
Investing in property is a proven and powerful strategy for earning a second income. After all, with tenants paying rent each month, it generates a predictable and recurring source of revenue. That’s one of the main reasons why buy-to-let became so popular in Britain.
Sadly, not everyone has the money to buy rental property, especially now that mortgage rates have shot up. Fortunately, there’s another way – one that doesn’t require going into debt.
Should you buy LondonMetric Property Plc shares today?
In fact, with just £5,000, investors can potentially start earning impressive passive income, overnight. Here’s how.
Earning real estate income
The easiest way to invest in property in 2025 is through a real estate investment trust (REIT). This special type of business owns, manages, and leases a portfolio of properties, collecting rent that’s then paid out to shareholders, typically every three months.
REITs come with a lot of advantages. Since they trade like any other stock, investors can put money in and take money out almost instantly.
At the same time, someone with just a few thousand, or even a couple of hundred pounds, can snap up some shares and begin generating a passive dividend income. And in many cases, the yields offered by REITs are much higher compared to the standard dividend payout of London-listed shares.
Best of all, they can even be held inside a Stocks and Shares ISA, allowing all this income to be tax-free – a massive advantage that traditional buy-to-let doesn’t have.
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.
A FTSE 100 REIT with lots of potential
The UK’s flagship index is filled with several REIT stocks. And one that I’ve already added to my income portfolio is LondonMetric Property
Following a series of acquisitions, the firm’s become one of the largest publicly-listed commercial landlords. This expansion ultimately led to the group’s inclusion in the FTSE 100 earlier this year. And its diverse portfolio contains a combination of logistical centres, retail parks, petrol stations, and even healthcare centres, among others.
Intelligently, most of its properties are rented under a triple net lease structure. That means the tenants are ultimately responsible for maintenance, insurance, and taxes. And consequently, LondonMetric benefits from lower operating costs and more predictable cash flows.
In fact, that’s how the REIT has delivered a decade of continuous dividend hikes, generating inflation-linked passive income for shareholders.
Risk versus reward
While I remain quite bullish on this business, there’s no denying there are critical risk factors that investors must carefully consider.
With the bulk of net profits paid out to shareholders, LondonMetric is highly dependent on external financing. As such, the balance sheet’s quite highly leveraged, making the group very sensitive to interest rates. And this exposure’s only amplified by the impact interest rates have on property valuations as well.
So far, the firm generates more than enough cash flow to cover both debt servicing costs and shareholder payouts. However, with several lease renewals on the horizon, cash flows could be adversely impacted if rents are negotiated lower by key tenants.
This risk is why the shares currently offer such a juicy 6.7% yield. Yet for me, the risk is worth the reward.
After slipping below £1, is this FTSE 250 REIT an unmissable passive income opportunity?
This FTSE 250 income stock has fallen below £1, pushing the dividend yield to a whopping 7.95%! Is this a rare opportunity to grow investment income?
Posted by Zaven Boyrazian, CFA
Published 20 October
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.
The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services.
Over the last six months, the FTSE 250 has enjoyed some strong performance, climbing by more than 14%. However, not all of its constituents have been so fortunate, such as Primary Health Properties (LSE:PHP).
Like many other businesses in the real estate sector, the healthcare-focused landlord has suffered from generally weak investor sentiment, resulting in the share price slipping back below £1. Yet despite this, dividends have continued to flow. And as a result, the REIT now offers a tasty-looking 8% dividend yield.
Should you buy Primary Health Properties Plc shares today?
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.
Impressive dividends
As a quick crash course, Primary Health Properties is one of the biggest healthcare landlords in the UK. It owns and leases a diversified portfolio of GP surgeries, pharmacies, and dental clinics primarily to the NHS.
With a government entity being one of its largest tenants, the company has enjoyed fairly resilient and predictable cash flows over the years. And it’s one of the main reasons why, despite the challenges within the real estate sector, the group has continued to reward shareholders with ever-increasing dividends for more than 25 years in a row.
But if that’s the case, why are investors seemingly not rushing to capitalise on the stock’s impressive yield?
Headwinds and challenges
Even with a resilient business model, the group has encountered several challenges both internally and externally. It’s no secret that higher interest rates have created numerous headaches for property owners, especially REITs that often carry significant debt burdens.
In the case of Primary Health, the group’s rental cash flows have continued to grow steadily, but rising debt costs have increased the pressure on net earnings.
At the same time, management’s contending with some protracted rent increase negotiations with the NHS. Should these talks fail, its currently impressive 99.1% occupancy might start to slip alongside its net rental income. After all, finding new tenants in the healthcare niche can be a bit trickier compared to the residential sector.
With that in mind, it’s not surprising that investors aren’t as keen to buy shares while the macro environment remains unfavourable.
Still worth considering?
The continued pressure of financing costs and delays in rent revaluations indicates that margins are at risk of being squeezed. This could also hinder rental income growth, squeezing the coverage of existing dividends and any potential future growth.
Nevertheless, the business continues to have an ace up its sleeve. Primary Health ultimately benefits from structural long-term demand for primary healthcare infrastructure. And that’s an advantage that doesn’t change even during economic downturns.
The balance sheet does carry a large chunk of debt. But it appears to remain manageable. And with interest rate cuts steadily emerging, the pressure from its outstanding loans should slowly alleviate over time while simultaneously helping boost the value of its property portfolio.
That’s why, despite the risks, I think this FTSE 250 REIT’s worth a closer look.
Disclaimer
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by Henderson High Income (HHI). The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
HHI’s blend of equities and bonds has supported outperformance and dividend growth over the past decade.
Overview
Henderson High Income (HHI) has been managed by David Smith since 2012, with a clear focus: to deliver a dependable income stream alongside long-term capital growth. Unlike many peers that focus solely on equities, HHI blends equities with an allocation to bonds. This mix, managed in collaboration with Janus Henderson’s fixed-income team and funded largely through structural Gearing, has helped enhance the trust’s yield, smooth income streams and dampen overall volatility.
On the equity side, David takes a disciplined bottom-up approach. He targets businesses with straightforward, defensible models, strong cash generation and robust balance sheets, whilst keeping a close eye on valuation. Importantly, he looks for companies with the capacity to grow dividends over time. Rather than simply pursing the highest yielders, he focusses on his income sweet spot of 2–6% yields, where he finds payouts tend to be more sustainable and supported adequately by long-term growth potential. Recent Portfolio activity reflects this philosophy, with new positions in Aberdeen and Telecom Plus, both cash-generative businesses offering reliable dividends.
Performance has also proved resilient. Over the past year, HHI delivered a 15.6% NAV total return, outpacing its composite benchmark and comparable with the broader UK market, despite maintaining a near 12% allocation to bonds. Notable contributors included Phoenix, benefitting from stronger-than-expected cash generation, and M&G, buoyed by a new partnership with Japanese insurer Dai-Ichi Life.
Today, the trust offers a yield of 6.0%, well above the UK market and the AIC UK Equity Income sector average. At the same time, it trades on a 6.7% Discount, wider than its five-year average of 4.2%.
Analyst’s View
Over the past few years, the UK market has often been cast as a slow-growth story compared with the US. Concerns over economic uncertainty, escalating political tensions and the looming budget have only reinforced this view. Yet over the past year, UK equities have delivered returns comparable with many other global markets, despite the lack of high-profile tech names. Moreover, valuations remain historically low, whilst fundamentals across many companies continue to be robust. For investors seeking a differentiated route into this opportunity, HHI offers a distinctive solution.
A key strength of the trust lies in its blend of equities and bonds. Structural gearing funding the bond portfolio adds an extra layer of differentiation and with borrowing costs below the yield achieved on these assets, HHI benefits from positive carry, enhancing income without introducing undue risk. Its flexible approach spans large- and mid-cap UK companies, alongside selective overseas holdings, providing diversified exposure beyond the dominant dividend payers of the FTSE 100 Index. Disciplined stock selection, focussing on understandable business models, strong cash generation and sustainable dividend growth, underpins a portfolio that’s outperformed its composite benchmark over one, five, and ten years.
As rates on cash wane, we think HHI’s premium dividend yield of 6.0%, fully covered by earnings and supported by improving revenue reserves, stands out, offering both income and potential capital growth. With a wider-than-average discount, it presents as an attractive option for investors seeking a differentiated income profile with meaningful long-term upside potential. Investors should, however, be mindful of potential headwinds. In fast-rising equity markets, HHI may lag pure equity strategies, and periods of sharply rising inflation or pressure on credit markets could impact bond performance.
Bull
- Differentiated investment process combines equities and bonds to deliver a high, sustainable and growing income, alongside capital growth
- Merger with HDIV has increased liquidity and enhanced asset base, lowering costs and broadening appeal
- Unique approach to gearing helps boost income and capital growth, alongside reducing volatility in the portfolio
Bear
- Allocation to bonds may see the trust struggle to keep pace with a strongly rising market, relative to a pure equity strategy
- Tilt to mid-cap companies may bring more sensitivity to state of the UK economy
- Whilst the approach to gearing helps dampen some volatility through bond exposure, it will still magnify losses in down marke
This passive income plan is boring and unimaginative. That’s why it actually works !© Provided by The Motley Fool
Passive income plans can come in all sorts of weird and wacky forms.
But the whole point of passive income is that should be (more or less) effortless.
So my own approach is based on a few basic principles – I want it to be passive and I want to have a strong chance of earning income.
Why reinvent the wheel?
Many businesses already know how to generate income.
In fact, they generate so much more income than they need for their own business needs that they give some of it to shareholders on a regular basis, in the form of dividends.
An example is Games Workshop (LSE: GAW).
At the start of June, it had £108m of cash and cash equivalents. Over the next six months, its operations generated £133m of cash. Even after spending on product development and sending a cheque to the taxman, Games Workshop divvied up £61m among its shareholders.
Yet it still ended the period with around £18m more in cash and cash equivalents than it began with.
In recent years, the FTSE 100 company has paid shareholders five dividends a year. All they need to do is spend money buying the share, sit back, and let the money roll in.
Taking a smart approach to income generation
But there are risks. Games Workshop’s concentrated manufacturing footprint means that if a key factory goes offline for any reason, sales could fall sharply. It plans a new factory in Nottingham, due to be completed next year.
Even a great, proven business can run into difficulties. So the savvy investor spreads money across multiple businesses to help mitigate the risk that one will do badly and reduce or cancel its dividends.
That does not necessarily take a lot of money – it is possible to buy shares even with a modest budget.
How much money could someone earn?
I use this strategy myself but I do not own Games Workshop shares, even though I think its fantasy universe and intellectual property are excellent competitive advantages.
Why ? The share looks pricy to me.
That is not bad: in fact it is in line with the FTSE 100 average. But I am earning much higher yields owning other shares, like 8.6%-yielding Legal & General and M&G, with its 9.5% yield.
Those are different companies to Games Workshop and each has their own risks as well as positive points. But by carefully selecting a diversified range of companies, I earn passive income from the hard work and proven business models of large blue-chip firms.
That need not be complicated.
An investor can start with how much they can spare, set up a share-dealing account or Stocks and Shares ISA then – having learnt something about key stock market concepts like valuation – start looking for income shares to buy.
The post This passive income plan is boring and unimaginative. That’s why it actually works ! appeared first on The Motley Fool UK.
Why MoneyWeek likes investment trusts© Getty Images
In the 1800s, investing was largely the preserve of the wealthy, with limited options available to the smaller investor. Foreign & Colonial pooled investors’ money and invested it in a diversified portfolio, spreading risk across a basket of assets.
The closed-ended structure, which provided a stable pool of long-term capital, made these investment companies ideal vehicles for financing the expansion of the British Empire and the rapid industrialisation of the Americas. As global investment markets grew and diversified, the range of investment options available to investors with investment trusts expanded, and the range of trusts available also expanded.
Investment trusts have a fixed capital base
Open-ended vehicles, such as exchange-traded funds (ETFs), unit trusts and open-ended investment companies (Oeics) issue or eliminate excess shares at the end of each day to ensure the NAV and the share price match. This means there’s no room for a discount or premium to emerge.
This also means the capital base can shrink dramatically if the number of sellers consistently exceeds the number of buyers (and the price of shares in the fund falls). As the capital base shrinks, the vehicle has to continue selling assets to fund investment outflows. If those assets are challenging to sell, this can lead to a liquidity crunch. That’s why investment trusts tend to be the best vehicle for holding illiquid assets. They have no obligation to sell the assets, no matter how wide the discount to underlying NAV may become.
Infrastructure isn’t the only asset class that lends itself well to the investment-trust structure. Trusts are ideally suited to owning portfolios of mixed assets, such as bonds, gold and stakes in hedge funds or private-equity investment funds. BH Macro (LSE: BHMU) has a position in the global macro hedge fund Brevan Howard, giving investors access to a fund that would otherwise be unavailable.
HarbourVest Global Private Equity (LSE: HVPE) is just one investment trust in the private-equity sector, offering investors exposure to this asset class via the trust structure. RIT Capital (LSE: RIT) and Caledonia (LSE: CLDN) are two examples of trusts making the most of the flexibility offered by the structure. Both are majority-owned by their founding families and own a broad portfolio of assets, from private-equity holdings to direct investments in other companies and portfolios of equities.
The structure of the investment trust also lends itself well to borrowing money. Investment trusts that specialise in acquiring illiquid assets – such as wind farms, property and infrastructure assets – can borrow against those assets to increase growth and build the asset base. These companies can also borrow to invest in equities. Borrowing money to invest in shares can be risky, but trusts can often mitigate some of the risk by issuing long-term fixed bonds.
For example, Scottish American (LSE: SAIN) issued £95 million of long-term debt between 2021 and 2022 with a blended interest rate of under 3%, maturing between 2036 and 2049. The trust, which owns a portfolio of equities, as well as property and infrastructure via other investment trusts, used the cash to reinvest into the portfolio.
The ability to borrow money is particularly helpful for the real-estate investment trust (Reit) segment of the market. Reits are a version of the typical investment trust, but with tax benefits when the majority of the portfolio is deployed into property. Companies like Supermarket Income (LSE: SUPR) and PHP (LSE: PHP) have leveraged this structure to build property portfolios designed around supermarkets and healthcare facilities, respectively.
MoneyWeek has always preferred investment trusts to open-ended funds for the above reasons – and the fact that they have historically outperformed other actively managed, open-ended funds. However, this has started to change in recent years. Investment trusts, particularly in equities, have struggled to keep up with the performance of other funds. As a result, investors have drifted away, and discounts to NAVs have risen sharply.
But there’s still a place for trusts within investors’ portfolios. Thanks to the structure of trusts, they are invaluable to build exposure to specific themes such as small caps, emerging markets, property and infrastructure. There are virtually no mass-market alternatives to the infrastructure offering, and trusts such as BH Macro, RIT and Capital Gearing (LSE: CGT) offer the sort of portfolio diversification that just can’t be found elsewhere.
