I’m a great proponent of investing in index tracker funds, certainly for beginners. They take away the complexities of researching your own shares (which many people don’t have the time for or simply do not want to do), and they’ll follow their selected index with usually very low charges (unlike the higher charges typically levied on actively managed funds).
If you’d like to do a little bit better but still don’t fancy picking your own individual shares, investment trusts can be a great way to go. They’re actively managed, but as you invest in them by buying their shares (rather than just handing over cash), you’re part-owner and there’s no conflict of interest or high charges.
Index-beater
Caledonia Investments (LSE: CLDN) aims for a long-term shareholder return in excess of the FTSE All-Share total return, while maintaining a progressive annual dividend. Over the past five years, the Caledonia share price is up 32% while the FTSE All-Share has only managed 7%. And while Caledonia’s dividend yields, at around 2%, are behind the index, the investment trust’s overall performance is living up to its ambitions.
Caledonia has just published its March 2019 full-year results, and has achieved a net asset value total return of 10.9%. Some of that includes currency gains, but we’re still looking at 8.1% excluding those. Net asset value per share (NAV) is up 9% to 3,582p, and the dividend has been lifted by 4% to 59.3p per share. That marks the trust’s 52nd consecutive year of increasing dividends, and is nicely ahead of inflation.
Chief executive Will Wyatt said: “We remain confident that our portfolio construction and underlying investments leave us well positioned to deliver our long term return targets and dividend growth.”
I see no reason to doubt that. And with the shares, at 2,919p, trading on an 18.5% discount to NAV, Caledonia Investments is high on my buy list.
45 years
Murray Income Trust (LSE: MUT) hasn’t raised its dividend for quite as many consecutive years as Caledonia. But having done so for 45 years in a row, it would be quibbling to suggest it’s not reliable.
As the name suggests, the aim is income, and the business has been providing dividend yields of between 4% and 4.8% over the past five years. An investment trust can hold back some of its cash in better years to even out its dividends over leaner times, and while Murray’s earnings have been fluctuating a little over the period, that’s enabled it to keep its dividend steadily growing.
The past few years have seen dividend rises come in a little behind inflation, but I see that as a bit of a short-term anomaly and I expect Murray to keep ahead over the long term.
As my colleague Edward Sheldon has pointed out, the trust puts a lot of its cash into defensive stocks, including Unilever, AstraZeneca, Diageo, BP, and Shell. With the possibility that we’ll be in for some post-Brexit turmoil, I see Murray Income as a safe investment for protecting our retirement nest-eggs.
The shares are currently on a 3% discount to NAV, and while that’s more modest than at Caledonia, it still strengthens Murray Income Trust as a buy, in my book.
