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.
-
Private school fees soar and VAT threat looms – what does it mean for you?Rising private school fees could see more than one in five parents pull their children out of their current school. Before you remortgage, move house or look to grandparents for help, here’s what you need to know.
-
Best and worst UK banks for online banking revealedWhen it comes to keeping your money safe, not all banks are equal. We reveal the best and worst banks for online banking when it comes to protecting your money from scams
-
AstraZeneca CEO’s £1.8mn pay rise approved despite shareholder oppositionAstraZeneca hiked its dividend to persuade shareholders to accept CEO Pascal Soriot’s pay rise. Is he worth his salary?
-
Adidas, Nike or Jordans - could collectable trainers make you rich?The right pair of trainers can fetch six figures. Here's how you can start collecting vintage Adidas, Nike or Jordans now
-
The industry at the heart of global technologyThe semiconductor industry powers key trends such as artificial intelligence, says Rupert Hargreaves
-
Three emerging Asian markets to invest inProfessional investor Chetan Sehgal of Templeton Emerging Markets Investment Trust tells us where he’d put his money
-
What to consider before investing in small-cap indexesSmall-cap index trackers show why your choice of benchmark can make a large difference to long-term returns
-
Why space investments are the way to go for investorsSpace investments will change our world beyond recognition, UK investors should take note
-
Time to tap into Africa’s mobile money boomFavourable demographics have put Africa on the path to growth when it comes to mobile money and digital banking
-
M&S is back in fashion: but how long can this success last?M&S has exceeded expectations in the past few years, but can it keep up the momentum?
