How to get a 5pc yield as negative rates loom

Savers who hope to generate an income from their money were dealt another blow last week when the Bank of England said it could introduce negative rates within six months.

That raises the prospect of savers paying banks to hold their cash, and the paltry yields offered by the safest bonds, such as those issued by governments, facing a further squeeze as their prices rise.

But there are still opportunities for even risk-averse investors to target a 5pc income if they are willing to be a little more adventurous. Investment trusts that invest directly in projects such as renewable energy, schools, hospitals, toll roads and energy grids can be an excellent source of stable and substantial income for savers.

Jason Hollands of Bestinvest, the fund shop, said the income from these trusts was backed by very long-term contracts, was sometimes underwritten by government partnerships

‘Mortgage-backed income is not as risky as the terminology might initially suggest’

and could even be linked to inflation, which made it extremely secure.

He recommended the £ 2.4bn Greencoat UK Wind investment trust, which yields 5.3pc, and the £ 3.3bn HICL Infrastructure trust, which yields 4.9pc. However, the trusts’ shares trade at premiums to the total value of the fund, of 11pc and 10pc respectively. This could make them vulnerable to a sudden fall in value.

Another option is real estate investment trusts, which own physical property and are often lauded for their ability to give savers a reliable income uncorrelated to stock market swings.

Mr Hollands said the most secure option was to buy logistics Reits that owned warehouse space and served the booming e-commerce industry.

“The more secure plays are the specialist logistics Reits, which have benefited from the shift to online shopping,” he said.

He recommended the £540m Warehouse Reit, which yields 4.9pc. The shares trade at a 10pc premium to the value of its assets.

Thomas Becket of Psigma Investment Management said funds that invested in “asset-backed securities” such as mortgages still yield 5pc.

“These are not as risky as the terminology might immediately suggest, as default rates are typically very low. They have the added bonus of inflation protection as the interest paid by many of the assets rises when interest rates do,” he said.

He suggested the £557m TwentyFour Income Fund, which invests in European and British asset- backed investments, with a large weighting in mortgages, and yields 5.8pc.