Trust in PEPs for high returns

Many of these are complicated and unusual investments, so it is essential to take advice

INVESTORS wanting income should look at investment trust shares, say analysts. The launch of a number of new investment trust funds has helped depress the prices of existing trusts, giving the prospect of good returns at lower-than-average risk.

Many of these are complicated and unusual investments - high-dividend shares that offer limited capital returns or that, in some cases, will be worth next to nothing after a few years, so it is essential to take advice. However, as the end-of-tax-year PEP deadline looms this week, some stockbrokers say these shares could make suitable investments for PEPs that let you choose what to tuck away. This is because these shares pay high incomes that, via a PEP, will be tax-free.

The catch in these split capital investments is the inbuilt capital losses or limitations, which mean that, in effect, part of the high income comprises the return of some of your original investment. But even after this, a typical example of these shares might give a holder total investment returns averaging at least 10 per cent a year.

"We are very bullish," says John Szymanowski, investment trust analyst at SBC Warburg. "Dividends are rising and income is going up. The returns look really good, even on a no-dividend growth assumption. Some shares are very, very cheap."

Bill Fowler, of Gerard Vivian Gray Asset Management, a company that specialises in managing investment trust portfolios, adds: "The overall return that some shares offer is incredibly good. For example, gilts [government stock] currently offer 6 to 8 per cent. A typical income share on very modest assumptions about dividend growth will give gross redemption yields [annual total payback to maturity] of 12 or 15 per cent."

SBC Warburg now has a long list of "buy" recommendations, which is available through many independent financial advisers. For example, River & Mercantile income shares currently offer investors an 11.1 per cent average gross return for the next four years or so to the wind-up date - even if there is no further income or capital growth in the trust's underlying assets. And the income shares of Fulcrum and Throgmorton Dual trusts are described as "ridiculously cheap".

Two important tips are to look to hold shares you buy to maturity, otherwise you may lose out because of price changes in the interim. And unless you need the income paid out, keep it in your PEP and recycle it into a different investment. Again, you should take advice on this.

PROMOTED VIDEO
News
Bryan Cranston as Walter White, in the acclaimed series 'Breaking Bad'
news
News
There have been various incidents of social media users inadvertently flouting the law
news

Sport
footballChelsea 6 Maribor 0: Blues warm up for Premier League showdown with stroll in Champions League
Life and Style
tech

Board creates magnetic field to achieve lift

News
Renee Zellweger as Bridget Jones
i100
Life and Style
Stack ‘em high?: quantity doesn’t always trump quality, as Friends of the Earth can testify
techThe proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
News
ebooksAn unforgettable anthology of contemporary reportage
Sport
CSKA Moscow celebrate after equalising with a late penalty
footballCSKA Moscow 2 Manchester City 2: Premier League champions let two goal lead slip in Russia
News
people
Arts and Entertainment
music
Life and Style
Designer Oscar de la Renta takes a bow after showing his Spring 2015 collection in September, his last show before his death
fashionThe passing of the legendary designer has left a vacancy: couturier to America’s royalty, says fashion editor Alexander Fury
News
Bourgogne wine maker Laboure-Roi vice president Thibault Garin (L) offers the company's 2013 Beaujolais Nouveau wine to the guest in the wine spa at the Hakone Yunessun spa resort facilities in Hakone town, Kanagawa prefecture, some 100-kilometre west of Tokyo
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Helpdesk Analyst

£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

Senior Helpdesk Analyst / Service Desk Co-ordinator

£27000 per annum + pension, 22 days holiday: Ashdown Group: An established ind...

Senior Pensions Administrator

£23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

Corporate Actions Administrator / Operations Administrator

£25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...

Day In a Page

Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
Ed Sheeran hits back after being labelled too boring to headline festivals

'You need me, I don’t need you'

Ed Sheeran hits back after being labelled too boring to headline festivals
How to Get Away with Murder: Shonda Rhimes reinvents the legal drama

How to Get Away with Murder

Shonda Rhimes reinvents the legal drama
A cup of tea is every worker's right

Hard to swallow

Three hospitals in Leicester have banned their staff from drinking tea and coffee in public areas. Christopher Hirst explains why he thinks that a cuppa is every worker's right
Which animals are nearly extinct?

Which animals are nearly extinct?

Conservationists in Kenya are in mourning after the death of a white northern rhino, which has left the species with a single male. These are the other species on the brink
12 best children's shoes

Perfect for leaf-kicking: 12 best children's shoes

Find footwear perfect to keep kids' feet protected this autumn
Comment: David Moyes' show of sensitivity thrown back in his face by former Manchester United manager Sir Alex Ferguson

Moyes’ show of sensitivity thrown back in his face... by Ferguson

Manchester United legend tramples on successor who resisted criticising his inheritance
Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Let's talk about loss

We need to talk about loss

Secrecy and silence surround stillbirth
Will there be an all-female mission to Mars?

Will there be an all-female mission to Mars?

Women may be better suited to space travel than men are