Wind turbines turn behind a solar farm in Rapshagen, Germany (Photo: Michael Sohn/AP)
Sustainable investing is rising in prominence by the year in the eyes of many stock market investors, especially those who wish to pursue a balanced and diversified portfolio as well as passive income from the equities.
To the uninitiated or readers suffering from an information overload, the simplest definition of sustainable or “green” or “ethical” investing is devising a portfolio strategy that not only adopts stable financial returns as a guiding principle but also considers social and environmental good to bring about wider change.
A widely used and often interchangeable term is environmental, social and governance (or “ESG”) investing. Though not always the case, by many measures, returns need not be sacrificed in a bid to make your investments more sustainable these days.
Furthermore, your portfolio does not have to be all about sustainability. The level of allocation towards sustainable investments could depend on your risk appetite and market objectives via a range of stocks and exchange-traded funds (ETFs). But some equity markets offer another pathway for sustainable investing – investment trusts.
Typically listed on UK and Japanese markets, investment trusts are public-listed pooled investment vehicles that generate income by investing in stocks of other companies, bonds (both corporate and government issued), real estate, infrastructure and privately held enterprises, etc.
They are closed-end entities, i.e., issuers of a fixed number of shares at any given time with their fund managers restricted from creating / redeeming shares without notification to the stock exchange. When examining the performance of such trusts, I believe two key figures to look at would be their net asset value (NAV) per share and dividend yield.
Starting with the former, NAV per share is a trust’s total assets minus its liabilities, divided by the number of shares in issuance. If a trust’s shares are trading at a “discount”, then it provides an indication that its share price is lower than its NAV per share. A discount may offer an opportunity to profit because it suggests market sentiment at a given moment in time – for whatever reason (e.g. – price of securities held, negative news-flow, etc.) – values the securities or assets in the fund to be below their comprehensive NAV value.
This may potentially offer an opportunity for a higher value realization at a later date in the trading cycle subject to market conditions, often over a 3 to 5-year horizon. However, a trust’s share price may also be higher than its NAV per share and trade at a premium. Coming to the latter figure to consider, dividend-yield or dividend-price ratio is noteworthy in the pursuit of a passive income. It is a trust’s dividend per share divided by its share price, expressed as a percentage to gauge returns. Be advised that not all trusts offer dividends.
Unsurprisingly, several sustainable investment trusts are on offer without having to undertake the risk of investing in specific equities. Many are easy to trade via the London Stock Exchange often providing exposure to renewable energy infrastructure, energy storage and electrification of human mobility. As with any asset class, you need to conduct background research and gauge their suitability in line with your investment objectives and risk appetite.
Based on current dividend yields*, NAV discounts** and exchange rates***, for me the following five UK-listed sustainable investment trusts stand out:
1. Triple Point Energy Transition Plc (LON: TENT)
Dividend Yield: 8.27%
NAV Discount: -34.02%
52-week high: 91.25p (Currency GBP / USD equivalent $1.171)
52-week low: 59.00p
Listed on the main market of the London Stock Exchange, Triple Point Energy Transition Plc invests in UK and European renewable energy projects touting its credentials as a stable dividend-paying trust that aims to enable a pan-European transition to a low carbon economy. Furthermore, its 7-8% average dividend yield not only ranks it among the highest in its category but also puts it on the list of the 20-highest dividend-yields among all UK-listed investment trusts.
2. NextEnergy Solar Fund (LON: NESF)
Dividend Yield: 7.52%
NAV Discount: -11.28%
52-week high: 123.00p (Currency GBP / USD equivalent $1.578)
52-week low: 95.40p
NextEnergy Solar Fund is listed on the London Stock Exchange’s main market and is a constituent of the FTSE 250 index. As the name suggests, it invests in a diversified portfolio of solar energy and energy storage infrastructure assets. Most of its long-term cashflows are inflation-linked via UK government subsidies, and it offers an attractive dividend yield.
3. Renewables Infrastructure Group (LON: TRIG)
Dividend Yield: 5.97%
NAV Discount: -11.32%
52-week high: 148.20p (Currency GBP / USD equivalent $1.901)
52-week low: 113.40p
Renewables Infrastructure Group has been listed on the London Stock Exchange for over a decade and is also a constituent of the FTSE 250 index. The company focuses on onshore and offshore wind farms and solar parks in the UK and Europe. Managed by InfraRed Capital Partners, this trust – quite like many of its peers – aims to offer stable long-term dividends and re-investment of surplus cashflows after the payment of dividends.
4. Octopus Renewables Infrastructure Trust (LON: ORIT)
Dividend Yield: 5.52%
NAV Discount: -9.70%
52-week high: 116.40p (Currency GBP / USD equivalent $1.492)
52-week low: 89.00p
With its management trail leading to one of Europe’s largest renewable energy investors – Octopus Energy – the Octopus Renewable Energy Infrastructure Trust aims to provide both capital appreciation as well as sustainable dividends by building and operating a diversified portfolio of renewable energy assets in Europe and Australia.
5. Greencoat UK Wind Plc (LON: UKW)
Dividend Yield: 5.51%
NAV Discount: -12.34%
52-week high: 168.40p (Currency GBP / USD equivalent $2.159)
52-week low: 130.40p
Managed by Schroders Greencoat LLP, a leading European renewable investment manager, Greencoat UK Wind has the honor of being the first UK renewable infrastructure fund to list on the London Stock Exchange. It is also a constituent of the FTSE 250 index and is focussed on UK wind power generation. It aims to offer dividends in line with the UK’s retail price index (RPI) inflation and preserve capital by reinvesting excess cashflow in additional operating UK wind farms, and via the deployment of portfolio leverage.
