Investment trusts are an excellent tool for investors to use. These instruments have been around in one form or another for over 100 years, and today they’re as useful as ever.
Even though equity investment trusts have been superseded by cheaper, more efficient tracker funds, open-ended investment companies, and unit trusts, mean the structure of these investment companies, unlike most other funds, they are not limited to where they can invest.
This model means that there are some very eclectic trusts out there which give investors exposure to all kinds of different assets offering market-busting dividend yields and diversification. Here are two such opportunities.
Income from lending
The aim of the Honeycomb Investment Trust (LSE: HONY) is “is to provide shareholders with an active level of dividend income and capital growth through the acquisition of loans made to consumers and small businesses as well as other counterparties.“
This strategy might seem risky at first, but the team behind the firm is extremely experienced. They have decades of experience and the loans are high quality.
For example, three portfolios of 40,000 loans acquired in the second quarter had an average outstanding loan amount of £4,190. For the first half, the trust reported investment income of £13.3m, an increase of 161% on investment assets of £300.2m. At the time of its IPO, Honeycomb stated that it was targeting a dividend yield of 8% on its initial listing price of 1,000p. Since listing, it has outperformed this target, achieving an average annualised yield of 9%.
Year-to-date, the trust has paid out 48p per share in distributions and is in line to payout a total of 96p – giving a yield of 8.1% at the current share price. The net asset value per share was 1,018p at the end of Septemeber.
Income from unloved property
If Honeycomb isn’t for you, Aew UK (LSE:AEWU) might be of more interest.
Aew invests predominantly in a portfolio of smaller commercial properties around the UK. These properties might not interest the likes of Land Securities, but they’re still interesting investments.
With a net asset value of £120m, and gearing of 22%, the firm is currently producing a dividend of 8p per annum for a dividend yield of 7.9% at the time of writing. For the three months to the end of July, Aew generated £3.3m in income from operations, easily covering the dividend for the period of £2.5m.
To help fund the expansion of the trust’s portfolio, management recently conducted a fundraise by way of a placing. Net proceeds were £27.5m, which will allow property managers to acquire new, high-quality assets to support dividend growth yet further. The company is looking to raise a total of £40m-£60m over the rest of the year to buy more assets. Management has a record of creating value, so it looks as if this cash call is the right decision.
Aew recently sold Valley Retail Park in Newtonabbey, Belfast, for £11.1, making a return of £4m after buying it for £7.1m in 2015.