Asset classes

Beyond equities and bonds, investors should also consider investing in property and alternatives, such as private equity, infrastructure and credit investments, to further broaden a retirement portfolio. Directly investing in such asset classes can be a difficult job, but there may be a simpler option.

There are a number of investment trusts which are invested in a wide range of assets, and they are structured as companies, enabling them to trade on the stock market like regular shares. As such, they can be held in a stocks and shares ISA or a SIPP for maximum tax efficiency.

Commercial property

One example is the Standard Life Investments Property Income Trust (LSE: SLI) which invests in a diversified portfolio of commercial properties. The trust seeks to generate an attractive level of income with the prospect of capital growth as well.

Jason Baggaley, who has been running the trust for almost 10 years now, has a preference towards higher-yielding properties with active asset management opportunities. Through refurbishments and lease renewals, Baggaley seeks to increase rental income and enhance capital value. The fund is a top performer in the direct property sector, after having delivered a net asset value (NAV) total return of 83% over the past five years.

The portfolio is mostly invested within the three main commercial property sectors of retail, office and industrial. Shares in the trust currently yield 5%.

Closed-ended structure

Property is an asset class which seems particularly suited to the closed-ended structure of investment trusts because of the illiquid nature of property. With a fixed number of shares in issue, investment trusts don’t have to sell assets when investors withdraw their money from the fund.

By contrast, open-ended investment vehicles such as unit trusts and OEICs are sometimes subjected to trading suspensions during times of market stress, when they are unable to raise sufficient cash to meet redemptions from investors. Investment trusts meanwhile, due to supply and demand, can see their shares trade at a discount or a premium to their NAVs.

Peer-to-peer lending

Elsewhere, the Funding Circle SME Income Fund (LSE: FCIF) is also worth a closer look. Launched only back in 2015, the fund invests in loans to small businesses in the UK, US and Europe.

I’m sure many of you have heard of peer-to-peer lending — it’s an increasingly popular option for individuals seeking better returns than those offered by savings accounts. But rather than invest in loans directly through a P2P platform, you can buy shares in such an investment trust and have your investments handled by a professional fund manager.

Investing this way also gives you exposure to business loans from overseas instead of limiting them to domestic borrowers as required by peer-to-peer platforms.

This Funding Circle operation invests in a diversified pool of loans to small businesses originated from the Funding Circle marketplaces. The portfolio is geographically split between the UK (67%), US (23%) and continental Europe (4%).

Shares in the trust currently yield 6.2%, with the fund trading at a 5% premium to its NAV.

The post Looking to retire? Consider these top dividend investment trusts appeared first on The Motley Fool UK.

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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.

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.

The post 2 investment trusts for income investors seeking reliable high yields appeared first on The Motley Fool UK.

More reading

• 1 S&P 500 name I can’t stop buying in my Stocks and Shares ISA
• Analysts reckon the Lloyds share price should be 21% higher!
• How much time and money would it take to become a stock market millionaire?
• Want to start buying shares? How good are you at these 3 things?
• How to target a £1,183 monthly passive income in a SIPP for life!

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.

Emerging markets

Templeton Emerging Markets (LSE: TEM) has had a great year thanks to the recovery in emerging market equities and the slump in the value of sterling. The trust’s shares are up 68% over the past 12-months, and even its discount to NAV has narrowed from a peak of above 20% to just 13%.

Today, valuations are not as cheap compared to a year ago, but emerging market equities still appear to be trading at a discount to developed markets. Commodity price volatility and Trump’s uncertain trade policy still pose big risks for emerging market investing. But the trust’s manager Carlos Hardenberg reckons developing economies are, in most cases, now more defensive and less vulnerable than they have been in the past.

Unquoted investments

Caledonia Investments (LSE: CLDN) has two interesting features. First, the trust is self managed, which means it employs an in-house investment fund manager, instead of hiring an external management company. This can allow it to take a long-term investment approach, which could give it an advantage over other investment companies.

Second, the trust invests a significant proportion of its portfolio value in unquoted companies — 42% at the end of January. This gives individual investors exposure to a sector which is generally difficult to get access to. The performance and valuations of unquoted companies tend to be less dependent on general stock market trends, which offers investors diversification benefits by reducing portfolio risk.

The trust has an impressive dividend track record, with 49 consecutive years of annual dividend increases under its belt. Shares in Caledonia Investments currently trade at a 16% discount to NAV and yield 1.9%, based on today’s share price of 2,770p.

Peer-to-peer lending

The Bank of England’s decision last August to reduce the base rate to 0.25% has piled even more downward pressure on returns offered by banks on cash balances. With interest rates so low, canny savers are having to look elsewhere to park their cash.

Investing in peer-to-peer lending can be a great way to boost your returns. 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.

The investment trust, which focuses on buying peer-to-peer loans, offers investors exposure to the much larger US market, in addition to the UK, European and Australasian markets. This also adds diversification, which can help to reduce overall investment risk. In addition, the trust owns equity stakes in the lending platforms, which may offer investors potential capital gains on top of the steady income generated by its portfolio of loans.

Concerns about the lending practices of peer-to-peer platforms and their ability to withstand a more difficult economic environment have no doubt shaken confidence in the market. But with P2P Global Investments currently trading at a discount to NAV of 20%, I think these fears are overdone.

P2P Global Investments currently trades at a trailing dividend yield of 5.9%.

The post These investment trusts could help you to retire early appeared first on The Motley Fool UK.

More reading

• 1 S&P 500 name I can’t stop buying in my Stocks and Shares ISA
• Analysts reckon the Lloyds share price should be 21% higher!
• How much time and money would it take to become a stock market millionaire?
• Want to start buying shares? How good are you at these 3 things?
• How to target a £1,183 monthly passive income in a SIPP for life!

Jack Tang has a position in P2P Global Investments. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.