Three investment funds that should prosper under a Corbyn government

A Corbyn government may not be welcomed by everyone, says David Stevenson, but it will bring investment opportunities. And these three funds should be able to take advantage.

947_MW_P20_Funds

Jeremy Corbyn: he could be waving from No.10 soon

2019 Getty Images

If I were a Conservative Party enthusiast, I'd be hopping mad right now. Obviously, Brexit hogs the headlines. But the real cause for anger is that the current government's precarious situation makes a Labour government ever more likely. I've watched the transformation of the Labour economic agenda, and it scares the heck out of me.

Thankfully, it could also mean investment opportunities. Let's start with green power. My sense is that a Labour government could choose to focus on the "third pillar of infrastructure" (after social infrastructure and renewable energy): energy efficiency. SDCL Energy Efficiency Income (LSE: SEIT) invests in projects that have little or no subsidy or regulation risk, don't take on exposure to energy markets, and rely on so-called "contractual de-risking".

How does this work? Imagine you are Santander bank and want all your offices to have LED lighting. You talk to the people behind this fund. They set up a special purpose vehicle (SPV), which funds the capital cost upfront and signs a deal with an energy-service company to run the operations. In return, the fund gets long-term cash flow from payment for the energy, and maybe even makes extra money if they overachieve on energy-saving targets.

So far, SEIT has acquired a seed portfolio of 12 investments and commitments, with expected returns of 7% to 8% after fees/costs and the impact of gearing (debt). SEIT's shares trade on a 7% premium to net asset value (NAV), with a dividend yield of around 5%.

Another big area worth focusing on is social housing. The most vulnerable funds here are those focused on high-margin, high-cost-of-capital supported housing, like Civitas and Triple Point. I think they'll be on the receiving end of negative policy decisions, as emboldened state planners look at the existing lease model and switch back to state funding.

By contrast, classic out-of-favour private-rented sector funds, especially those with some social-housing exposure, could do well. Residential Secure Income (LSE: RESI) looks healthy, has a good pipeline of developments and is moving into shared-ownership projects. These are really interesting if priced right, and could be bullet-proof even in a Corbyn government. RESI has already amassed a significant portfolio of income-producing retirement homes and local-authority housing, working only with investment-grade counterparties. With a portfolio of £260.7m, boasting long-term inflation-linked contracts, this fund represents decent value on a discount to NAV of 16% and a yield of 5.5% per year.

Hedging your bets

Last, but by no means least, we have Target Healthcare (LSE: THRL), which focuses on purpose-built accommodation for older people. My hunch is that a Labour government would try and force through some form of back-door nationalisation of elderly care, especially for those services funded by local authorities. Target owns its properties and then leases them to well-backed operators, with long-term contracts and RPI protection.

The £477m portfolio is made up of 56 operational homes and five pre-let forward-funded developments, with a net initial yield of 6.3%, and a loan-to-value ratio of 17%. The current share price represents an 8.2% premium to NAV and a prospective yield of 5.6%.

Finally, even if we don't get a Labour government, a future Conservative government is still likely to be fairly keen on social housing, retirement homes and energy efficiency. All three funds are decent long-term income investments, and their shares are currently trading at premiums or discounts that aren't outrageous.

Recommended

Persimmon yields 12.3%, but can you trust the company to deliver?
Share tips

Persimmon yields 12.3%, but can you trust the company to deliver?

With a dividend yield of 12.3%, Persimmon looks like a highly attractive prospect for income investors. But that sort of yield can also indicate compa…
1 Jul 2022
Share tips of the week – 1 July
Share tips

Share tips of the week – 1 July

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
1 Jul 2022
How to invest in copper, the most important metal in the world
Industrial metals

How to invest in copper, the most important metal in the world

As the world looks to electrify and try to move away from fossil fuels, copper looks set to be the biggest beneficiary. But how can you invest? Rupert…
30 Jun 2022
Latest issue
Investments

Latest issue

Latest issue of MoneyWeek magazine
30 Jun 2022

Most Popular

UK house prices are definitely cooling off – but are they heading for a fall?
House prices

UK house prices are definitely cooling off – but are they heading for a fall?

UK house prices hit a fresh high in June, but as interest rates start to rise, the market is cooling John Stepek assesses just how much of an effect h…
30 Jun 2022
How to invest in copper, the most important metal in the world
Industrial metals

How to invest in copper, the most important metal in the world

As the world looks to electrify and try to move away from fossil fuels, copper looks set to be the biggest beneficiary. But how can you invest? Rupert…
30 Jun 2022
Don’t try to time the bottom – start buying good companies now
Investment strategy

Don’t try to time the bottom – start buying good companies now

Markets are having a rough time, so you may be tempted to wait to try to call the bottom and pick up some bargains. But that would be a mistake, says …
1 Jul 2022