15 February 22

Alternative investment strategies to target sustainable yield

Investors and savers are facing some difficult choices. The average saver is likely to see their savings shrink by £400 this year, thanks to interest rates failing to keep up with rampant inflation. Along with rising energy bills and increased National Insurance, people face a choice of either falling behind in real money terms or potentially increasing their investment risk disproportionately against their risk appetite to satisfy their needs.

This is the backdrop for alternative investments, which are playing an increasingly prominent role for investors and savers.

We are seeing an acceleration in the demand for positively yielding alternative investment strategies precisely at a time of increased hunger for investments that deliver long-term sustainable performance with a broader societal purpose – demonstrated by the stratospheric levels of capital flowing into ESG and sustainable funds, with assets touching a record high in Q3 2021.

Alternatives are already commonplace for a wide range of investors. They can mean anything from real assets, such as property or digital infrastructure, to private direct lending. Choosing the right vehicle and strategy is a challenge, and there are several options investors could consider, the most straightforward of which are in two key areas: Investment Trusts and Venture Capital Trusts (VCTs).

Investment trusts

Investment trusts are an appealing option for investors and savers. Depending on the strategy and sector, they can provide a diversified, yet robust, sustainable investment portfolio that offers the dual benefits of long-term capital return and income. In 2020, investment trusts achieved an average 17.8% total return whilst the UK stock market saw a decline of 9.8%. While 2021 saw less impressive returns, there were some triumphs and, with more than 300 trusts now currently trading on the UK stock market, focused on more than 30 different sectors, there is an abundance of choice.

As an example, Triple Point’s Digital 9 Infrastructure plc (D9) is an investment trust which invests in a range of digital infrastructure assets which help to deliver, inter alia, a reliable, functioning internet. The number 9 in Digital 9 Infrastructure comes from the UN Sustainable Development Goal number 9, which focuses the fund on investments that decarbonise digital infrastructure and bridge the digital divide by increasing connectivity globally. With its IPO in March 2021, to date, D9 has raised total equity of £845 million, and invested into two platforms: Verne Global, a 100% renewable energy powered data centre platform in Iceland, and Aqua Comms, a subsea fibre platform with 20,000km of fibre. Both platforms have made follow on investments. The company seeks to achieve sustainable inflation-linked income of 6% per annum, coupled with long term capital growth for investors

Venture Capital Trusts (VCTs)

The UK tech sector has boomed over the last 18 months. Tech start-ups in London raised a record $25.5bn in funding last year, more than double the total in 2020. The growing sector presents a huge opportunity for investors to back high-quality, better-capitalised companies with lower valuations. This is the focus of Venture Capital Trusts (VCTs).

One key feature of a VCT is its ability to pay out tax-free dividends, offering investors in pension drawdown a crucial alternative income stream. Furthermore, VCTs are main market-listed funds and can be sold – after being held for five years – with any profits on their disposal being CGT-free.VCTs are an attractive investment for a range of investors, however – and particularly high-net-worth individuals constrained by the limits on their pension contributions. Another key feature of a VCT is the 30% upfront income tax relief, which is available on investments of up to £200,000 per tax year.

Triple Point’s Venture Fund VCT is now in its fourth year, having launched a new top-up offer in September 2021. Throughout the pandemic, the investment team has been actively working to provide new businesses with the money and support they need to grow, while giving smart start-ups access to fast, reliable capital at the earliest stages of their lifecycle.

Since inception, the fund is over £30m, invested into 30 early-stage companies across 11 sectors that actively solve challenges facing large corporates. With one exit to date, the Venture Fund VCT has delivered a total return over 16% since launch (including dividends and capital).

The outlook for investment

Though the outlook is more optimistic than in previous recent years, we know that there will be pressures ahead for investors and wider society. Investors would do well to capitalise on the current opportunity to diversify their portfolios with alternative investment strategies in order to optimise their chances of sustained and reliable returns.

There remain clear alternative options for those seeking profitable long-term investment strategies, designed to create value for communities and the people who live and work in them. Investment trusts and VCTs all have the potential to meet the needs of investors with sustainable goals and priorities.

The Triple Point Venture Fund VCT carries all the risks of investment in smaller companies and places investor’s capital at risk. There is no guarantee that target returns will be achieved, and investors may get back less than they invested. Past performance and forecasts are not a reliable indicator of future performance. Tax treatment depends on the individual circumstances of each client and is subject to change. Tax reliefs depend on the VCT maintaining its qualifying status. Investors should only subscribe for shares on the basis of information contained in the Prospectus which is available via the Documents section of the website.

Potential investors should refer to the information within the Prospectus which is available via the Documents section of the website and must only subscribe for or purchase shares in Digital 9 Infrastructure plc on the basis of information contained within it. As with all investments, investors’ capital is at risk. Target returns may not be achieved and investors may not get back their full investment. Any references to past performance and expectations for the digital infrastructure market should not be taken as a reliable guide to future performance.

This article has been approved as a financial promotion by the investment manager, Triple Point Investment Management LLP, which is authorised and regulated by the Financial Conduct Authority.