Investment trusts have been around in one form or another for over 100 years, and they are still as useful today as they were last century.
Primarily investment companies, investment trusts are closed ended, unlike most other funds and are not limited where they can invest. This model means that there are some very eclectic trusts out there which give investors exposure to all kinds of different assets.
Doric Nimrod Air One Ltd (LSE: DNA) is a perfect example. This is not an investment trust in the traditional sense, but it has all of the same qualities.
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Renting planes
Doric’s investment objective is to obtain income returns and a capital return for its shareholders by acquiring, leasing and then selling one Airbus A380-861 aircraft. The plane is leased to Emirates Airlines with five years remaining. The shares are currently paying out 2.25p per share per quarter for a dividend yield of 7.7% at current prices.
The value of Doric’s main asset is around $104m compared to a market cap of £49.9m. The firm also has $55.5m, which is it steadily paying off with part of the lease payments. Debt has fallen from $120m over the past six years.
While this instrument might not be suitable for all investors because it is highly specialised, it’s attractive for the risk-tolerant investor who’s looking for a bespoke asset to add yield to a portfolio.
Buying loans
Blackstone Loan Financing (LSE: BGLF) is another investment trust-like investment that offers a market-beating dividend yield. The firm puts its money in loans and returns capital/interest payments to investors.
As it flies relatively under the radar, the shares look cheap, offering a dividend yield of 9.9% at the time of writing. Once again, this isn’t an instrument that’s suitable for all investors, but if you’re willing to put in the extra effort, the Blackstone fund could add a boost to your portfolio. The shares are currently trading around net asset value.
There’s a full breakdown of the firm’s loan portfolio on the website. It owns a diversified portfolio of loans attached to high-quality assets, so the chances of multiple defaults are relatively small. Debt is spread out on assets around the world in many different sectors, adding a further layer of protection.
Property payouts
Empiric Student Property (LSE: ESP) is more suitable for the average investor. Structured as a real estate investment trust, Empiric opts for student accommodation, manages the properties and returns the majority of the rental income to investors.
This is a very lucrative model. The company paid out a total of 6.1p per share last year for a yield of 5.5% at current prices. The payout is rising steadily in line with rental income growth as, due to the REIT designation, the company has to pay out 90% of rental income to investors. Management is targeting annual payout growth of at least RPI.
In July, Empiric raised £110m by way of a placing and has since been spending this cash buying new properties to add to its portfolio. As well as these new buys, Empiric has several properties under development which will ultimately add £13m to its rent roll. This portfolio expansion, coupled with the company’s increasing rent roll should give investors an annual return of 10% p.a. — that’s according to management’s projections.
