Investment trusts for income
How investment trusts can help savers cope with low returns on deposits and increasing inflation to preserve their purchasing power
Investment trusts’ unique advantages for income seekers
Savers are being squeezed by low returns on bank or building society deposits (1) and increasing inflation (2) but investment trusts can help protect your purchasing power to maintain an enjoyable lifestyle. Achieving a sustainable income is particularly important for people who decide to make use of ‘pension freedom’ to fund retirement from investments over long periods, perhaps over several decades.
Investment trusts enable individual investors of all sizes to obtain rising income and capital preservation from a wide range of companies and countries, while sharing the cost of professional fund management. Diversification can diminish the risk inherent in investment by reducing your exposure to setbacks or failure at any one company or country.
Unlike other forms of pooled funds, investment trusts are able to smooth out some of the shocks of stock markets by retaining up to 15% of returns in good years to top-up income payments to shareholders in bad years. J.P. Morgan Asset Management offers a variety of investment trusts, including a global range of funds for income-seekers.
Think big for better returns
There is no need for investors to restrict their choice to a single country or a single source of income. Investment trusts bring the world within reach and can enable shareholders to gain exposure to alternative assets, such as infrastructure, that only the richest individuals could otherwise consider.
For example, bridges, office blocks and warehouses that might each cost several millions of pounds can be held by pooled funds to generate returns for investors of all sizes. Infrastructure can deliver rental income and the potential for capital gains, as well as allowing professional fund managers to diversify their portfolio with the intention to diminish risk.
A global multi-asset strategy can reduce volatility – or the potential for prices to move markedly – while generating a mixture of income and growth.
Shareholders in JPMorgan Multi-Asset Trust plc* benefit from the expertise of a global team of professional managers overseeing multi-asset mandates that were worth more than £182bn in March, 2018.
This trust uses alternative assets alongside conventional bonds and shares to reduce some of the volatility of stock markets. It aims to produce a target total return of 6% per annum with an initial annual dividend of 4%, with dividends to be distributed quarterly – that is, every three months.
Growth and income
You don’t have to choose between either growth or income; you can have a mixture of both. Better still, JPMorgan Global Growth & Income plc* helps investors to plan ahead by paying quarterly dividends that are set at the start of each financial year. The yield – that is, income expressed as a percentage of the share price – is targeted at a minimum of 4% per annum.
Professional fund managers seek the most promising investments they can find anywhere in the world to form a concentrated portfolio that typically consists of between 50 and 90 stocks.
They also aim to diminish currency risk – that is, exchange rate movements which reduce returns – while seeking to increase returns by judicious borrowing to invest, also known as ‘gearing’. However, it is important to beware that gearing can increase losses as well as gains.
Britain’s relationship with the European Union continues to stimulate debate but should not be allowed to obscure the fact that Continental Europe is home to many leading companies with good prospects for sustainable dividends and capital growth. JPMorgan European Investment Trust plc* is our only closed-ended fund, that specifically focusses on generating income from European companies. It aims to achieve an attractive income and pays quarterly dividends.
Whatever Brexit means – and whether you are for or against – this trust enables investors to retain exposure to European economies across the Continent.
Although risk management does not imply zero risk, the professional fund managers aim to minimize currency risks while maximising returns with judicious gearing. This trust also offers two types of shares – growth and income – which enables investors to transfer between them without creating capital gains tax (CGT) liabilities.
Asia and emerging markets
Many British investors imagine that shares listed on Asian and Global Emerging Markets Indices are focused solely on capital growth to the exclusion of delivering income but that is no longer true. Many companies based in these geographical and economic sectors have demonstrated an ability to pay substantial income as part of total returns to investors. There is not always a need to sacrifice income for growth – or growth for income.
For example, JPMorgan Asian Investment Trust plc* provides shareholders with professionally-managed exposure to some of the most rapidly-expanding economies in the world, while also delivering a regular income in the form of quarterly dividends. To help shareholders plan ahead, the trust declares dividends equivalent to 1% of its net asset value on the last day of each financial quarter.
Brazil, Russia, India and China – sometimes called the BRICs – are the biggest emerging markets but other economies – sometimes called ‘frontier markets’ – can also deliver substantial returns to investors willing to accept higher risks.
South Africa, Mexico and Thailand are among countries within which JPMorgan Global Emerging Markets Income Investment Trust plc* seeks extraordinary value. Shareholders benefit from one of the longest-established emerging markets teams of specialists, who aim to reduce risk by identifying stable companies capable of delivering sustainable dividends and capital growth.
A world of opportunity
Investment trusts are a tried-and-tested way of bringing a world of opportunity within the reach of individual investors, big and small, whether your objectives are income or growth or a mixture of both.
There is no need to focus on just a few companies or countries or conventional bonds and shares; you may also benefit from multi-asset strategies investing in infrastructure.
Investment trusts enable you to diminish the risk inherent in stock markets by diversification – or spreading assets widely – and they enjoy the unique advantage of being able to smooth income payments to shareholders. Sustainable income and capital preservation are particularly important for people seeking to fund retirement from investment income.
Investors should remember that share prices can fall without warning and that you may get back less than you invest. However, investment trusts seek to diminish the risk inherent in stock markets by diversification and professional fund management.
Note 1: Source: Moneyfacts as at 16 May 2018
Note 2: Source: Office for National Statistics as at 30 May 2018
*Source J.P. Morgan Asset Management as at 30 May 2018. The stated target returns and objectives are the investment manager’s objectives only. The objectives are net of fees. There is no guarantee that these objectives will be met.
- JPMorgan Asian Investment Trust plc
- JPMorgan Global Emerging Markets Income Trust plc
- JPMorgan Multi-Asset Trust plc
- JPMorgan European Investment Trust plc – Income Shares
- JPMorgan Global Growth & Income plc
This is a marketing communication and as such the views contained herein are not to be taken as an advice or recommendation to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose.
The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested.
Changes in exchange rates may have an adverse effect on the value, price or income of the products or underlying overseas investments. Past performance and yield are not reliable indicators of current and future results. There is no guarantee that any forecast made will come to pass.
Furthermore, whilst it is the intention to achieve the investment objective of the investment products, there can be no assurance that those objectives will be met. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies.
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