I’ve been a big fan of investment trusts for a long time, for a few good reasons. The main one is that they can give me a load of diversification in one go.
I haven’t used any of my 2024 ISA allowance yet, but I want to branch out from my usual preference for FTSE 100 dividend stocks. And that’s where investment trusts can really score. I can try something new, and still keep my risk as low as possible.
That’s why I previously bought some Scottish Mortgage Investment Trust shares. It gets me a stake in the US tech stock market, without the risk that comes with buying a single stock.
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Spread my wings
Right now, I like the idea of retail real estate rental. And considering I can’t afford to buy a whole supermarket, I’m eyeing Supermarket Income REIT (LSE: SUPR).
After a big collapse from the peaks of 2022, the share price is now down 30% in the past five years.
That doesn’t surprise me too much for a couple of reasons. One is the hammering the retail sector’s taken in the past couple of years. The other is falling property values.
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Weak valuation
Weak asset values could keep the real estate investment trust (REIT) share price down for some time. And there might be fears that new rental contracts could be less profitable.
But the bottom line for me is that I judge the UK’s top supermarkets as pretty much unshakeable over the long term. And I reckon there should be plenty of rental cash flow to keep the dividend yield going for decades, currently yielding 8%.
Oh, and the trust’s shares trade on a 14% discount to net assets.
Renewable energy
I see the renewable energy business as having great promise. But I do think at least a few of today’s pioneers could come to nothing.
And that’s where something like Greencoat UK Wind (LSE: UKW) comes in. It’s another REIT, and its name tells us exactly what it does. It’s grown to become the UK’s largest owner of wind energy assets, by generating capacity.
In this case the share price is flat over five years, so it might not look quite as undervalued.
Quite how much future energy will come from which sources remains to be seen. And wind farms do have the disadvantage of being both large in area and those at sea can be hard and expensive to maintain.
Buy REITs?
But if I had my next ISA investment cash ready today, I’d snap up both. As it is, they’re on my shortlist. But it depends on how their valuations look when I’m ready.
I’m watching a few others too, including Target Healthcare REIT and Primary Health Properties, in the care homes and medical facilities businesses respectively.
Again, I’ll have to weigh up the valuations and risks when I’m next ready to invest. But I’m ready.
