For the past decade, some commentators have said that a way of beating inflation is to put your money in an equity income investment trust. They may not offer shoot the lights out performance, but investment trusts dedicated to dividends have provided a comfortable and solid baseline for at least matching consumer prices inflation. The yield on the average UK equity income investment trust has tended to consistently beat inflation – and if you picked the higher yielding trusts or headed overseas for dividends, you could get CPI and then some. That stands in stark contrast to savings accounts, which have on regular occasion paid less than inflation – losing savers’ money in real terms. The added advantage for investors was that on top of any dividend pay-outs, they also had the opportunity for capital growth from the share price return. The most important measure of an investment isn’t just yield, it is total return – the combination of dividends and growth – but a well-maintained, solid and reserve-backed investment trust dividend provides a nice reliable baseline to put some faith in for at least a chunk of your portfolio. Even if you had managed just average performance from the Association of Investment Companies’ UK equity income sector, over the past five years you would have reaped a total return of 41.5% and over the past decade it would have been 140% This is equivalent to roughly 7% and 9% annually, respectively. That’s certainly more than a savings account would have paid, which you would expect as investing in shares involves taking a greater degree of risk. There is a bit of a problem now though. Consumer prices inflation was revealed last week to have hit 4.2% and is expected to keep climbing, whereas according to the AIC, the average UK equity income trust yields 3.7% Even these reliable investment vehicles no longer have a pay-out that matches inflation. There are, though, investment trust income sectors where reliable dividends can be found – going global is often good and Asia is regularly tipped – and investors should always avoid too much home-bias. What is interesting about the UK income trusts is that they are invested in what is considered a still largely unloved market, but one that analysts suggest is relatively cheap and could be lined up for better times. It emerged that JP Morgan’s analysts had changed their tune and switched from being bearish and then neutral, to advising clients to buy UK stocks. Of course, a re-rating for UK shares might not arrive, if it does it won’t be a one-way street, and there might still be better investments elsewhere. But at a time when inflation is eating away at our savings more rapidly than it has done for a decade, the triple opportunity of a reliable dividend, from a potentially undervalued part of the global stock market, which is conveniently close to home could be worth considering.

Past performance is not a reliable guide to the future. The value of investments and the income from them can go down as well as up. The value of tax reliefs depend upon individual circumstances and tax rules may change. The FCA does not regulate tax advice. This newsletter is provided strictly for general consideration only and is based on our understanding of law and HM Revenue & Customs practice as of November 2021 and the contents of the Finance Bill. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case.