With the UK election just around the corner, who knows what could change on the tax front over the coming couple of years. Fortunately, as it currently stands, I can invest £20k a year into my Stocks and Shares ISA and have my gains and dividends protected from tax. For the coming year, here are two ideas that could help my ISA performance.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Next up, the future
The first option I’m considering is the NextEnergy Solar Fund (LSE:NESF). This investment trust focuses on putting money to work in the solar energy and energy storage sector.
As a member of the FTSE 250, I’m not concerned about this being a small company that has a limited track record. Rather, it has a decade of being listed on the public market.
Over the past year, the stock’s down 21%. This doesn’t accurately reflect its actual net asset value (NAV). Rather, I feel this reflects negative investor sentiment. In the latest annual report, the management team flagged up that NextEnergy had done well despite “difficult macroeconomic conditions and a lower-than-anticipated solar generation environment”. The risk is that if this continues in the coming year.
Even with this situation, the fund delivered a 1.3x cash-covered dividend. Given that the dividend yield is a whopping 10.75%, the fact that the business has more than enough cash to cover the dividend is confidence building.
With a 26% share price discount to the NAV, I think this is a great trust I can buy and hold for the long term. Let’s not forget that solar and renewable energy is the future.
Tapping into a different asset class
Another trust I like is the Invesco Bond Income Plus (LSE:BIPS). As the name suggests, this focuses on generating me income not only from stocks but also through bonds.
With the fund up 7% over the past year and trading at a modest 1.5% premium to the NAV, things already look good. Some of the top holdings include bonds from Barclays, Lloyds Banking Group and Vodafone.
I think that now could be a good time for me to get exposure to these bonds because I think the UK recession’s behind us and growth prospects are strong. As a result, I see very limited risk in the companies defaulting on their debt.
Further, it provides me with quite a unique opportunity to get access to debt in some of the FTSE 100 giants. If I wanted to buy it directly, the minimum size investment can be as high as £100k! With the trust, I can invest a much smaller amount.
The main risk I see is that this trust is investing in a completely different asset class to what I normally focus on. Indirectly investing in bonds via this stock is a different world, and I need to be careful to ensure I fully know what I’m doing here.
I like both investment trusts and am going to add them to my ISA when I get some free money.
