There are only a few days left to take advantage of your ISA allowance for the 2017/18 tax year. The deadline is midnight on 5 April, so if you have any unused allowance by then, you’ll lose it for good.
With this in mind, I’m considering these two high-yielding investment trusts for my ISA this year.
Infrastructure fund
First is the John Laing Infrastructure Fund (LSE: JLIF). This trust, which invests in a diversified portfolio of predominately government-backed infrastructure projects, is attractive because it delivers stable, predictable income, with the possibility of some capital appreciation.
Infrastructure assets have for many years been a popular choice among sovereign wealth funds and professional investors. This is because, as they earn stable long-dated cash flows from essential physical assets, infrastructure investments are ideal for investors who are looking to generate long-term stable returns.
It’s not a widely-held asset class for retail investors due to the difficulty in accessing the market, but thanks to the closed-ended structure of investment trusts, retail investors can easily gain broad exposure to such assets via investment companies such as this fund.
Portfolio
Altogether, the John Laing Infrastructure Fund has 65 infrastructure PPP projects, diversified by both geography and sector. The fund targets an internal rate of return (IRR) of between 7% to 8%, and its fund manager currently charges a management fee of around 1% annually on the fund’s adjusted portfolio value.
It is worth noting that it was affected by the collapse of Carillion. The troubled construction firm was the facilities management provider for 8.5% of its portfolio value at the time of liquidation, leading it to expect an adverse impact on its NAV of £3m. This shows that although infrastructure assets tend to be reliable defensive investments, investors can still be exposed to operational risks.
Following a 2.5% increase in its final dividend to 3.57p per share, shares in the fund currently yield 6.2%, while trading at a 10% discount to its NAV.
Higher yield
For an even higher yielding investment, I’m considering Blackstone/GSO Loan Financing Limited (LSE: BGLF). Shares in the fund offer a market-beating yield of 10.7% via investments in the European and US secured loan market.
Now, as indicated by its much higher yield relative to investment-grade corporate and government bonds, it’s obvious that the fund is invested in riskier forms of debt. In fact, the vast majority of its picks are held in sub-investment grade loans.
High-yield loans come at risk of greater chances of default, although in good economic times their greater yields often more than offset that risk, enabling them to typically generate a better rate of return than safer, higher-quality loans.
The main reason I’m particularly keen on this fund over similar offerings in the investment trust space is because it’s run by the massive private-equity group Blackstone. I reckon this gives it an advantage in finding attractive investment opportunities, as Blackstone offers the fund scale in the huge secured loan market.
Clearly, this isn’t a fund that’s suitable for every investor, but if you’re prepared to take on slightly more risk for more income, the addition of this one to your portfolio could seriously boost its average yield.