After decades of quiescence, inflation appears to be rearing its head once again. With interest rates likely to remain well below inflation for many years, savers face the dismal prospect of ever-diminishing purchasing power.
At Capital Gearing Trust, we focus on protecting the value of our clients’ wealth in real (after inflation) terms. There are a number of tools that we use in pursuit of that aim, including substantial investments in inflation-linked bonds. We also focus on specialist equities, typically investment trusts and real estate investment trusts (Reits), which benefit from long-term inflation-linked revenue streams. These are three examples from the infrastructure and specialist property trust sectors.
Long-term cashflow from infrastructure
International Public Partnerships (LSE: INPP) is an FTSE 250 investment trust that holds stakes in over 100 public infrastructure projects in a range of sectors. Its areas of focus include electricity transmission, transport and education. Recent new projects include subsea transmission cables linking UK offshore windfarms to the electricity grid.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Project revenues are regulated or backed by government contracts, and are long term with a weighted average life of 32 years. The portfolio enjoys substantial inflation protection: the managers estimate that portfolio returns increase by 0.8% for every 1% of inflation. This results in a well-underpinned 4.2% dividend that has historically grown by at least 2.5% per annum regardless of the economic environment. If inflationary concerns start to escalate, these secure inflation protected cashflows should be valued at a significant premium.
Affordable inflation-linked rents
Residential Secure Income Reit (LSE: RESI) has two principal assets within its portfolio: retirement flats and shared ownership accommodation. The retirements flats are let to elderly residents on affordable rents which rise in line with the retail price index (RPI) each year.
Shared ownership accommodation involves the trust selling a share of residential properties to homebuyers and then renting to them the balance of the house. The purpose is to help house buyers take ownership of properties they would otherwise be unable to buy.
The trust is able to secure grant funding from the government which it uses to ensure the rental charge is affordable. These rents also rise in line with RPI. The combined effect results in a high-quality income stream that enables it to pay a 4.7% dividend that should rise in-line with inflation.
Uncapped RPI-linked leases
Secure Income Reit (LSE: SIR) holds a portfolio of high-quality assets on long leases including leisure assets leased to theme parks, private hospitals and hotels. Other similar trusts trade on significant premium to their underlying asset value, but Secure Income Reit trades at only a modest premium. A majority of its long leases are linked to RPI without any caps, which could prove very valuable in the event of a serious surge in inflation.
-
Are you one of 15 million people at risk of retirement poverty?Two-fifths of people in the UK aren’t on track for a minimum lifestyle in retirement, new data shows. Are there steps you can take to boost your pension?
-
150 banking hubs now open across UK – is there one near you?As the 150th banking hub opens its doors, a Post Office deal that offers basic banking services has also been extended until 2030. We explain what this means for you
-
Unilever braces for inflation amid tariff uncertainty – what does it mean for investors?Consumer-goods giant Unilever has made steady progress simplifying its operations. Will tariffs now cause turbulence?
-
'Technology will determine tomorrow’s top stocks in emerging markets'Opinion John Citron, investment manager of the JPMorgan Emerging Markets Investment Trust, tells us where he’d put his money
-
Two ways to tap into monopoly profits from airportsMost investors can’t get their hands on airports. Here are two ways you can
-
Three British mid-caps that could make 'attractive' investmentsOpinion Charles Luke, manager of the Murray Income Trust, highlights three UK-listed mid-cap companies, as he tells us where he'd put his money
-
Fat profits: should you invest in weight-loss drugs?The latest weight-loss treatments could transform public health and the world economy. Should you invest?
-
How investors could profit from Ramsden Holdings' four-part growth strategyRamsdens Holdings offers a diversified set of financial and retail services and a juicy yield, says Dr Michael Tubbs
-
How to invest in the booming insurance marketThe insurance sector is experiencing rapid growth after years of stagnation. Smart investors should buy in now, says Rupert Hargreaves
-
Out of America's shadow: Why Trump's tariff chaos may be good for non-US stocksOpinion Upending global investment and trade could benefit other countries at the expense of the US market, says Cris Sholto Heaton
