Budget buys
Ian Cowie hunts for Budget beneficiaries
Two views make a market, with every investor or buyer of shares requiring a vendor or seller to strike a bargain. Much the same thing could be said about the Autumn Budget of 2024, which divides opinion between optimists – or ‘bulls’ – who believe it will help the economy, and pessimists – or ‘bears’ – who fear it might hurt the financial outlook.
“Two views make a market, with every investor or buyer of shares requiring a vendor or seller to strike a bargain. Much the same thing could be said about the Autumn Budget of 2024.”
Fortunately, whichever view we take, there are various investment trusts to turn our opinions into financial facts. For example, Chancellor Rachel Reeves vowed to make Britain “a clean energy superpower” and pledged to spend £3.4 billion to reduce carbon emissions and improve household energy efficiency between next year and 2028.
That should be good news for several investment trusts, including two of my most valuable holdings; Ecofin Global Utilities and Infrastructure (stock market ticker: EGL) and Greencoat UK Wind (UKW). Underlying assets at EGL include the American low or no carbon power giants, NextEra Energy and Constellation Energy; with the former featuring solar panels and the latter including nuclear plants. Meanwhile, UKW focuses on British offshore wind farms.
“Never mind the hot air, what about shareholder returns? EGL delivered 30% over the last year and 46% over the last five years with a dividend yield of 4.4% that increased by an annual average of 5% over the last five years.”
Never mind the hot air, what about shareholder returns? EGL delivered 30% over the last year and 46% over the last five years with a dividend yield of 4.4% that increased by an annual average of 5% over the last five years. Launched in September 2016, it lacks a 10-year track record and is priced at 11% below its net asset value (NAV). EGL leads the two-fund Infrastructure Securities sector over the last year and five years.
Bargain-hunters and income-seekers may favour UKW’s 17% discount to NAV and its 7.6% dividend yield, which is rising by 8.2% per annum. However, it has delivered lower total returns of 0% over the last year, 18% over five years and 111% over the decade. UKW leads over 20 funds in the Renewable Energy Infrastructure sector over the last five and 10-year periods.
Followers of more recent form might prefer Triple Point Energy Transition (TENT), which leads this sector over the last year with total returns of 38% and yields 12%. But it lacks longer term statistics because it was launched in October, 2020, and trades at a 26% discount to NAV after a managed wind-down was approved last March.
Against all that, sceptics and climate change deniers – or folk who believe we have always had bad weather – plus others who think we will need fossil fuels for a while yet, may wish to consider BlackRock Energy & Resources Income (BERI). Top 10 assets include the oil giants Shell and Exxon Mobil. Despite total returns of 16%, 116% and 124% over the standard three periods, plus a 3.7% yield rising by 2% per annum, it continues to trade at a 10% discount to NAV.
Reeves’ other big ticket Budget initiatives might help investment trusts elsewhere. For example, she prescribed a £22.6 billion increase in day-to-day spending on the NHS over the next two years, plus a £3.1 billion increase in its capital investment.
“Reeves’ other big ticket Budget initiatives might help investment trusts elsewhere. For example, she prescribed a £22.6 billion increase in day-to-day spending on the NHS over the next two years, plus a £3.1 billion increase in its capital investment.”
Such huge sums cannot hurt the Biotechnology and Healthcare sector where I have been a shareholder in Worldwide Healthcare (WWH) for more than a decade. This £2 billion giant delivered 17%, 31% and 128% over the usual periods but remains at a 11% discount to NAV, which might be explained by skinny income of 0.8%, rising by a sickly 1.1%.
RTW Biotech Opportunities (RTW) leads this sector over the last year with a total return of 37% but zero income. Polar Capital Global Healthcare (PCGH) is in, er, pole position over the last five years and decade with 83% and 169% returns respectively, plus a microscopic dividend yield of 0.6%.
More generally, bulls of the Autumn Budget 2024 may hope it can continue the recent revival of the UK All Companies and UK Smaller Companies sectors. They remain priced at average discounts of 11% and 12% respectively, despite Great British returns of 26% and 23% over the last year, which both exceeded their five-year performances.
“Bulls of the Autumn Budget 2024 may hope it can continue the recent revival of the UK All Companies and UK Smaller Companies sectors. They remain priced at average discounts of 11% and 12% respectively, despite Great British returns of 26% and 23% over the last year, which both exceeded their five-year performances.”
Taking the contrarian view, bears of the Budget might seek opportunities overseas among hundreds of investment trusts listed in London but focussed on foreign companies. But beware letting pessimism become too extreme and remember the City adage: bears sound clever but bulls make money.
Wherever you choose to invest, don’t forget to consider holding your shares in an ISA or a pension, such as a SIPP. Despite predictions of a “painful” Budget, the most popular tax shelters emerged unscathed and intact. Investors might not be so lucky next time.
