Investment trust dividends have risen to record levels and investors in alternative finance-focused funds have benefited from some of the largest growth, research suggests.
The latest investment trust dividend monitor from data company the Link Group found dividends rose 15.4 per cent to a record £5.5bn in the twelve months to the end of March 2022.
Alternative investments saw payouts jump 25.1 per cent annually to £3.65bn and are now nine times larger than in 2010.
In contrast, investment trusts that invest in listed equities held payouts flat at £1.85bn
In 2010, alternative categories of investment trusts contributed less than a third of the dividends paid by the sector overall.
In 2021 they contributed two thirds, according to the research.
The analysis shows that investment trusts in the Debt: Direct Lending Alternative Investment Companies (AIC) sector paid dividends of £111.5m in 2021 and paid out £40.7m to investors in the first quarter of this year- up from £17.7m in the first three months of 2021.
“10 years ago, alternatives were a much smaller segment of the investment trust market, but they have rapidly expanded as new investment opportunities have opened up in response to investor demand,” Ian Stokes, managing director of corporate markets UK and Europe for Link Group, said.
“Given that many of the assets in alternatives trusts are relatively illiquid, they are very well suited to the closed-ended structure.”
Richard Stone, chief executive of the AIC, said investment companies are also highly suitable for investing in alternative assets which can generate attractive yields, like renewable energy infrastructure, property and debt.
“This is because they have a permanent capital structure and are listed on the stock exchange, allowing investors to buy and sell their shares easily,” he said.
“Meanwhile, managers can take a long-term view of their portfolio and be fully invested without ever being forced to sell. In the current inflationary environment, some alternative assets like infrastructure and certain types of property deliver income which is contractually linked to inflation providing some comfort to income seekers when the cost of living is high.
“Investment companies also have independent boards of directors who look after shareholders’ interests, another important feature in tough market conditions.”