The bid for BBGI Global Infrastructure (BBGI) announced last week might provide a quick win for anyone who bought in cheap and wants to cash out, but ultimately it leaves investors with less choice than they had before. And as we’ve seen with trust consolidation elsewhere, from the disappearance of the music royalty funds to the winding up and merging of many a property vehicle, it also means investors have fewer sources of alternative income.
There are still options for investors who want a source of dividends not derived from stocks, but they often have to accept a level of disruption in return for the best yields. Take the renewable energy infrastructure space as one example: battery fund Gore Street Energy Storage (GSF) comes with a yield north of 14 per cent. While it hasn’t had the same problems with revenues as the two rivals in the space, it still operates in a less mature subsector of the renewables space and investors are wary given the problems seen in recent years.
Plenty of other renewable plays come with stonking yields, from Triple Point Energy Transition (TENT) and NextEnergy Solar (NESF) at around 12 per cent each to Octopus Renewables Infrastructure (ORIT). The AIC’s Renewable Energy Infrastructure grouping is on an average yield of 9.8 per cent, with the Infrastructure sector on 6.2 per cent.
It’s a similar story if we look at the property space. The average trust in the UK Commercial Property sector trades on a yield of 12.7 per cent. Such numbers look extremely attractive even in a world where the ‘risk-free’ yield from a 10-year UK government bond comes to 4.5 per cent.
But once again, investors need to account for the fact that such trusts have uncertain prospects when it comes to returns, and could well fall victim to disruption and consolidation in the sector. It takes time and effort to then redeploy that capital.
Some trusts from other alternative sectors also have their own chunky yields. Debt funds continue to offer big payouts, with TwentyFour Select Monthly Income (SMIF) and BioPharma Credit (BPCR) yielding more than 8 per cent.
It’s still strange to consider that some of the private equity trusts are big yielders nowadays, having focused more on dividends in recent years in a bid to provide a sweetener for shareholders. Apax Global Alpha (APAX) shares are on a yield of 8.3 per cent, with Partners Group Private Equity (PEY) on 6.8 per cent and CT Private Equity (CTPE) on 5.5 per cent. Those trusts also continue to trade on hefty discounts, too.
Investors do therefore have a good number of options left when it comes to alternative income, but this can involve plenty of risks. There’s also a good degree of competition from traditional sources such as equity trusts or the likes of bonds.
Trusts that pay dividends can see their share price collapse if that payment comes into question. As such, it can make sense to treat these funds as potentially punchy bets rather than a sure thing. It also makes sense to diversify (not just by individual fund but by sector and asset class), and to have a watchlist of potential trusts to hold in case an investment does disappear to the M&A frenzy.
