These investment vehicles acquire portfolios of stocks or other assets to meet their investment objectives. These objectives can be anything from outperforming the market to beating inflation or generating a specific income level. 

I own several investment trusts in my portfolio, and I am currently looking for other trusts to buy with a focus on income generation. 

Indeed, investment trusts have a unique quality that makes them attractive income investments.

Unlike other investment funds, they can hold back a percentage of revenue in good years. This revenue reserve can then be used in bad years to cover dividend payouts if income from the portfolio is not enough.

This was particularly handy last year when many companies cut their dividends. Investment trusts with revenue reserves were able to maintain their distributions to investors.

As such, here are two companies I would buy to meet this goal.  

Income investment trusts to buy

The first trust on my list is Shires Income (LSE: SHRS). This investment trust owns a blend of different assets, including other investment trusts, fixed income investments and high-yield stocks. 

According to the its latest factsheet, its largest holding at the end of May was the Aberdeen Smaller Companies Income trust. The second and third largest holdings were fixed income investments. These were the Ecclesiastical Insurance 8.875% and Royal & Sun Alliance 7.375% preference shares. The largest single stock holding was an investment in AstraZeneca. 

The mixture of stocks, trusts, and fixed-income investments means the firm offers a higher dividend yield than average. It currently offers a yield of 4.7%. 

The one drawback of this trust is that it has a relatively high ongoing charge of 1.21%. It may also be challenging for some investors to understand due to the complex mix of assets and fixed income securities.

Nevertheless, I like this blend of different assets, and I am attracted to the 4.7% dividend on offer. That’s why I would buy the investment trust today. 

Diverse income

The second income investment trust I would buy today is the Diverse Income Trust (LSE: DIVI).

This company takes a different approach to income investing. It focuses purely on quoted or traded UK stock. Although it can invest in large firms, Diverse tends to concentrate on smaller businesses. The largest holding at present is the financial services firm CMC Markets.  

The exposure to smaller companies could help the trust produce capital growth and income, which suggests it offers something different to Shires, as fixed income investments do not tend to generate capital growth. 

That being said, smaller company stocks can be volatile. So, this investment trust might not be suitable for all investors.

Still, I think the trust offers something different. I am also attracted to its 3.2% dividend yield. 

The post 2 investment trusts to buy for income appeared first on The Motley Fool UK.

Put simply, investment trusts are long-term-focused diversified instruments, which makes them the perfect asset for both beginners and experienced investors alike.

One example is the Diverse Income Trust (LSE: DIVI) from fund manager Miton. Diverse Income’s goal is to achieve a steady level of income for its investors as well as booking capital growth over the long term. Even though it’s only a few years old (inception 2011), the company has so far managed to beat its benchmark substantially, returning a cumulative 160% since launch, compared to its UK Equity Income Sector Benchmark return of 98.9% over the same period.

Income portfolio

Diverse Income has been able to achieve this return by investing in a broad selection of UK mid-caps that have both bright growth prospects and sustainable dividends. Currently, the top holdings include logistics company Stobart Group, insurance business Charles Taylor, IG Design Group and Zotefoams.

At the time of writing the trust supports a dividend yield of 3.3% and trades at a slight discount to its net asset value of 0.6% (last recorded net asset value is 103.9p). The one downside of this investment is the trust’s slightly higher than average ongoing management charge of 1.15%, although I believe that this is a fair charge considering the outperformance it has generated over the past five years.

Growth investor 

Another investment trust that might be a great addition to a beginner investors’ portfolio is the Artemis Alpha Trust (LSE: ATS).

I believe this one is an excellent buy as it offers exposure to growth stocks as well as international equities and unquoted businesses. According to the trust’s most recent half-year report, at the end of October, 25% of the portfolio was invested in unquoted companies while only 87% of the public quoted equity portfolio was invested in the UK.

Is that a good thing? Unfortunately, Artemis Alpha’s high-risk approach hasn’t paid off over the past five years. During this period the fund has underperformed its benchmark by around 50% excluding dividends. Thanks to this lacklustre performance, the shares currently trade at a discount to net asset value of 19.6%. On a net asset value basis, the trust has only underperformed by 35% excluding dividends.

Nevertheless, despite this poor short-term performance, I believe that over the long run, Artemis Alpha’s international diversification coupled with its focus on high growth businesses will produce returns for investors. Total annual fees are only 0.9%, and in addition, the trust supports a dividend yield of 1.4%. 

For beginner investors who want exposure to high-growth small-caps, but don’t know where to start, Artemis Alpha could be a great buy.

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