2 investment trusts for income investors seeking reliable high yields

Should you invest in these two high-yielding investment trusts to add income to your portfolio?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

P2P investing

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.

Aircraft leasing

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%.

Downside risk

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »