Three alternative sources of income

Tuesday, 9th February 2016 09:37 - by Lumin Wealth Management

If you're looking to add some diversification to your portfolio but still generate an income, here are three funds that we hold within our portfolios. 

Tritax Big Box REIT (BBOX.L).

This fund was our best performing asset last year returning approximately 24%. The fund invests in a portfolio of distribution centres that are known as Big Box centres. As retailers develop their online and physical distribution networks these properties have become highly valued. Tritax target a dividend yield of 6% over the medium term.A recent update shows the underlying properties grew in value by 15.7% over 2015 and given they paid dividends too, the total return was 19.2%. Moving to a premium to NAV saw the final return to shareholders hit 24% in 2015.Because it is on a small premium we took some profits in early January but retain some exposure.

UK Commercial Property Trust (UKCM.L)

With total assets of £1.4bn spread across the UK in a variety of property types it was formerly managed by Ignis, but now by Standard Life.It had a fantastic 2014 when commercial property trusts became so popular they moved to a premium to NAV.It started 2015 on a large premium which was eroded over the year meaning it now sits on a small discount. Total return to shareholders over the year was a small negative (0.26%).We view this as a good opportunity to buy and added to our position in early January.The dividend yield is in the region of 4.5%. It has the ability to use gearing, and currently run a net position of 10% giving investors lightly leveraged exposure to the UK commercial property market. Like many investors we expect returns from the UK commercial property market to be positive over the coming year but mainly comprised of income rather than capital. 

Both these two funds are investment trusts, whereas the third is an open ended vehicle.

The third fund is also not a property fund - it is an alternative trading strategy. This is a similar classification to hedge funds, we just label them differently because they do have market directionality contained within them.

Aviva Multi-Strategy Target Income. 

The fund targets an income of 4% which is paid monthly.It is a relatively new fund that is constructed in a similar fashion to the Standard Life GARS fund. The GARS fund has been investable for retail investors since 2008 and has been very successful.
It has had just a third of the volatility of equities but delivered and annual return of 7.45%.One of the main architects of the GARS fund was Euan Munro one who now heads up the Aviva investors business. He has set up this fund to use the same process as the GARS fund but with trade ideas coming from across the Aviva Investors business. In 2015 it produced a total return of 7.03%. The fund has only been running since December 2014, but has gathered assets under management of £470m already.Because it is not an investment trust, there is no premium or discount to NAV issues to worry about.
As stated throughout we hold all three funds to varying degrees within client portfolios, and of course past performance should not be taken as a guide to future performance.

Written by Lumin Wealth Management

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.