The low-interest-rate environment has left income investors hungry for yield. As such, I’m considering these two discounted high-yielding investment trusts to boost my returns.
Low rates
With the Bank of England base rate at just 0.25%, many savers are struggling to earn a decent income from their savings. Fed up with low rates, canny savers are having to look elsewhere to beat low returns.
Investing in peer-to-peer lending is one way to improve the return on your savings, but for investors who don’t want to go through the trouble of setting up their own account with a peer-to-peer lending platform and micro-managing each debt investment, P2P Global Investments (LSE: P2P) offers an alternative route for savers to gain access to the sector.
Shares in the investment trust have gained 12% since April, after the fund manager announced a review of its performance in light of falling returns. It has since decided to gradually shift towards sectors with better risk‐adjusted returns and reduce its exposure to US consumer loans, due to rising currency hedging costs. This helped to improve investor sentiment, and narrowed its share price discount from 24% of it net asset value (NAV) at the start of April, to around 13% now.
At a current price of 861p a share, P2P Global Investments currently trades at a dividend yield of 5.6%.
Utilities and infrastructure
Alternatively, investing in defensive stocks, particularly utility and infrastructure stocks, is another popular choice for income investors seeking to beat low returns on savings. Utilities are generally regarded as defensive investments which pay shareholders a safe source of income year after year. But instead of just buying the likes of National Grid and Severn Trent, why not diversify geographically to potentially boost returns and reduce risk?
Of course, you could directly buy into foreign utility equities, but then you would have to deal with the added complexity of tricky tax implications, foreign exchange transactions and additional research demands.
Instead, investing in a fund such as the Ecofin Global Utilities And Infrastructure Trust (LSE: EGL) would be so much easier for most. The investment trust is traded similarly to any UK stock, and the fund is professionally managed by Ecofin, an independent London-based asset management firm that specialises in investing in such sectors.
This fund puts its money primarily in utilities and other economic infrastructure equities, with the aim to deliver a total return (that is the sum of capital gains, dividends, interest and other distributions), of 6%-12% per annum over the medium-to-long term.
Europe, including the UK, is its largest geographical exposure, representing 50.1% of total assets, and this is followed by North America, which accounts for a further 39.2%. Top holdings include French water and waste management company Suez (4.9%), German utility Innogy (4.7%), SSE (4.3%), US energy infrastructure firm Williams Companies (3.7%) and US waste-to-energy company Covanta (3.4%).
With shares in the investment trust trading at a discount to its NAV of 13%, I reckon the fund could be a tempting play on rising infrastructure spending globally, with its yield of 5%.
