Investments  

Snapshot: Trusts are taking an alternative route

Investment trusts are a useful vehicle for investors to gain exposure to those assets that are considered alternatives.

As the Association of Investment Companies (AIC) points out, some of the highest-yielding investment trusts and sectors are in the alternative assets space.

Jemma Jackson, PR manager at the AIC, attributes this to the suitability of the closed-ended structure when it comes to alternative assets, such as infrastructure and debt. It may explain why these types of trusts are proving popular among investors and it is not surprising that there have been a number of investment trust launches in alternative sectors.

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Some of the investment trusts specialising in alternatives that launched this year include the John Laing Environmental Assets Group issued in March, a trust that sits in the AIC’s Sector Specialist: Infrastructure - Renewable Energy sector.

There were also two trusts that launched in the Sector Specialist: Debt sector earlier this year, notably TwentyFour Select Monthly Income and P2P Global Investments.

Other sectors and asset classes that are generally considered alternatives include asset leasing, private equity, UK property and utilities.

In terms of recent non-traditional launches, the JPMorgan Senior Secured Loan trust, which invests in mostly US secured bank loans, was issued roughly a year ago.

Tim Mitchell, head of investment trust sales at JPMorgan Asset Management, suggests: “UK investors tend to think of loans as quite ‘alternative’ since they aren’t very common here, although the asset class has been more recognised and well known historically in the US.

“As with many investors turning to investment trusts with various forms of alternative exposures, we’ve seen interest from those who are seeking a measure of protection from rising interest rates as well as compelling yields.”

James Carthew, research director at Quoted Data, notes that debt funds are the biggest alternatives sector, with 26 such products investing in various bond instruments, which he explains are often illiquid and so are suited to a closed-ended structure.

Mr Carthew continues: “In spite of cuts in government subsidies – for example, around solar – renewable energy infrastructure funds are still attracting assets, with Bluefield Solar Income fund raising £123m and NextEnergy Solar raising £95m this month. There is room for development and expansion of projects, even if the large solar projects are not the main focus as before.”

But he claims the asset-leasing sector is going to be one of the fastest growing alternative sectors in the investment trust industry.

“Asset leasing has huge potential as a result of the attractive incomes on offer,” he explains. “The average yield of funds in this sector is 7.6 per cent.

“While there is a risk that the person who leases the asset defaults on the contract, this is reflected in the attractive yields offered on these funds and relies on the investment company manager’s expertise in their management of these leasing arrangements.”