With interest rates still near historic lows, it can be hard to find mainstream investments that will pay out a significant yield.
However, if you’re prepared to take on additional risk, you may want to consider investing in investment trusts. Buying shares in an investment company is a quick and relatively inexpensive way to help diversify your investments, and there are some very eclectic trusts which generate reliable high yields that are backed up by relatively safe underlying investments.
Peer-to-peer lending has grown rapidly in recent years and is fast becoming a popular source of income for investors hunting for better returns than those offered by savings accounts.
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, P2P Global Investments (LSE: P2P) offers an alternative route to gain access to the sector. It’s an investment trust that offers investors a ready-made and diversified portfolio of peer-to-peer loans, saving time from building a portfolio from scratch and enabling investors to earn income straight away. At its current share price, it has a trailing 12-month dividend yield of 6%.
Discount to NAV
P2P Global Investments is particularly worth considering because the fund trades at a big discount to its net asset value (NAV). Although the discount had narrowed substantially since it announced plans to improve its loan book performance in April, the valuation gap has begun to widen again in recent weeks. Shares in the fund now trade at a 24% discount, meaning investors can buy into the loans portfolio for less than the sum of its parts.
Sure, concerns about rising default rates will continue to sway its shares, but I reckon these fears may be overblown. And even if I’m wrong, its sizeable discount offers a cushion against any painful eventualities.
For investors willing to take on a bit more risk, Amedeo Air Four Plus (LSE: AA4) offers potentially greater rewards.
The investment company seeks to obtain income and capital returns for its shareholders by acquiring, leasing and selling aircraft. Its a business model which generates a reliable income stream that is secured against a very movable, hard tangible asset.
With the steady rental income that the aircraft lessor receives, it pays a quarterly dividend of 2.065p per share, giving its shares an attractive current yield of 8%.
One major downside risk is that uncertainties about resale values could be a major concern for investors. All aircraft are leased from the company for a period of 12 years, meaning planes can be returned to the company after that period. Aircraft lessors are usually then able to sell the asset or re-lease it for reasonable value, but that isn’t always the case.
AA4’s eight Airbus A380s are of particular concern, because demand for the aircraft is very limited. Dr Peters Group, a German leasing company, recently placed an A380 into storage after Singapore Airlines decided to retire the plane from service and return it to its lessor.
One consolation is that AA4 has recently been diversifying its portfolio to include other aircraft types, such as the A350 and the Boeing 777. I expect further new aircraft acquisitions will occur in the future, reducing the risk even more.