Investment trusts could boost retirement savings

Simoney Kyriakou

Simoney Kyriakou

Pension savers looking for a return on some or all of their cash lump sum could find themselves joining the so-called ‘hunt for income’, Sherry-Ann Sweeting has said.

The marketing manager of SIT Savings Ltd, which is the alternative investment fund manager of The Scottish Investment Trust, said the hunt for income had been pushing people towards equities in their pursuit of higher yields.

Despite the protracted low interest rate environment, Ms Sweeting said there were a wide variety of assets and investment vehicles available for those looking to generate a higher income than can be gained from cash alone.

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She said: “One investment vehicle which is often overlooked but could make a positive difference to the size of a pension pot is the investment trust.

“Investment trusts can offer significant long-term track records of dividend increases. A fifth of conventional Association of Investment Companies member investment trust companies which have been in existence for more than 10 years have raised their dividends for at least each of the past 10 years.”

She said that according to the AIC in March 2015, the Scottish Investment Trust has more than 30 years’ unbroken record of dividend increases. She added that SIT has either increased or maintained its dividend every year since the Second World War.

Ms Sweeting said: “Investment trusts with long-term consecutive dividend increases are dominated by the Global and the UK Equity Income sectors which yield on average 1.8 per cent and 3.6 per cent respectively.

“It is in the less traditional investment sectors that higher investment trust dividend yields tend to be found. Of the 55 investment trust companies with a dividend yield of more than 5 per cent, almost three quarters (73 per cent) invest in specialist sectors such as direct property, infrastructure and debt.”

However, while these specialist sectors can offer opportunities for higher levels of income, they tend to be higher risk as assets held are often illiquid, and income-generating niche investments can be subject to sector-specific risks, with potentially more volatile investment performance.

Adviser view

Tony Yousefian, consultant from London-based Fund Calibre, said: “Generally speaking, investment trusts versus other sorts of income-generating investments can be a good alternative way of generating income, and they can maintain income during periods of uncertainty better than collectives.

“An investment trust, being a company, can use its reserves to pay out dividends to shareholders. So investors who rely on dividends to boost their income, may find investment trusts are a nice structure.”