There’s also political uncertainty and the expectation that the stock market will remain volatile while the UK negotiates its exit from the EU.
In this climate, income-producing investments, which give regular payouts in the form of dividends, are particularly attractive to investors.
One of the most popular ways to gain income is by buying investment trusts. This form of investment has two main advantages for the income-seeker. The first is that some investment trusts are able to retain some of the income they generate in the good years so that they can bolster dividend payments in the bad. This approach has led to many investment trusts increasing their dividend payments every year for many decades, and some for more than 50 years.1 [RM1]
Benefits of closed-ended investments
The other advantage is that they can invest in a wide variety of sectors and geographical areas giving investors the opportunity to diversify their investments by accessing areas of investment such as property. These sectors often pay high dividends and so are popular with those seeking an income.
Open-ended funds issue and cancel shares based on demand from investors, but closed-end funds have only a finite number of shares in issue that can be bought and sold on the stock market.
Open-ended funds that invest in illiquid sectors – those that cannot easily be bought and sold as investment property – can run into trouble when the market is volatile, such as after the EU referendum last year.
Political uncertainty meant that large numbers of investors wanted to cash in their investments, and this led to open-ended property funds seeing trading suspended, and customers being unable to get their money.
However, it’s worth remembering that the share price can fluctuate depending on investor sentiment.
BMO’s investment trusts
More investment trusts than ever now pay their dividends quarterly, according to the Association of Investment Companies2, reflecting investors’ hunger for income.
Investment trusts allow you to invest in many types of asset, depending on your interests and risk appetite. Some trusts are more focused on providing an income and others on growth.
“At BMO we have a wide range of investment trusts to suit varying investments needs,” says Marrack Tonkin, head of investment trusts at BMO Global Asset Management. Mr Tonkin said it is particularly important for income-hungry investors to create a diversified portfolio of funds investing in different types of assets. Three trusts that may attract income-seekers are the BMO Managed Portfolio Trust, BMO UK High Income Trust and F&C Commercial Property Trust.
The Managed Portfolio Trust invests in a range of other trusts, which gives investors a broad portfolio of different types of assets. F&C Commercial Property invests in UK commercial property and pays its dividends monthly, and BMO High Income Trust invests in mid-sized and large UK companies.
BMO Asset Management Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: Exchange House, Primrose Street, London EC2A 2NY. Registered in England & Wales No 517895.
This article was first published on the Telegraph’s website here.