Why our stock market funds are doing better than property and infrastructure

The performance of our portfolio in capital terms is being held back by some investments more than others

Today’s figures on the performance of our Income Portfolio, published in the table opposite, do not make for especially comforting reading, although the pattern we have noted before

– a fall in capital values combined with a higher and reliable income – remains. As income is what the portfolio is for, there is comfort here. We won’t dwell too long on the reasons for the disappointing capital return, in the hope that readers have no pressing wish to sell and are content to pocket the income and wait for an improvement in asset prices. But a couple of broad themes are apparent.

First, our property and infrastructure funds have performed worse than our stock market funds. The former categories have been especially hit by the rise in the yields on “risk-free” gilts, much discussed here in recent weeks. As income funds, property and infrastructure trusts have been seen as obvious “bond proxies” and have therefore suffered a similar fate, although in this column’s view the tarring of these investments with the same brush overlooks the fact that bonds are true “fixed income” assets whereas property and infrastructure funds do have at least the potential to grow their dividends. In fairness we should acknowledge that increasing your divi is harder if your interest bill is going up, as some trusts’ will be in the current circumstances.

Second, the portfolio’s two venture capital trusts have not done well, even if they have paid us a considerable sum in dividends over their time in the portfolio.

Third, we have suffered a particularly severe loss on one holding, the former New Residential

Investment Corp, now renamed Rithm. This New York-listed business has struggled to recover from the pandemic and we have lost £9,100 on this holding alone, our biggest single deficit by some margin.

To return to the income, we have estimated what we should receive this year on the basis of payments made so far and the published plans of the various holdings. The figure comes to £26,795, which is at least more than the £25,000 target at the portfolio’s inception, if not enough to have kept up with inflation since then.

Our holdings have produced a clutch of dividend rises this year and we hope for more, not least because our stock market investment trusts often have reserves that can be used to support or boost the dividend even when their own dividend income from their holdings is static or even falls. Despite the negative sentiment towards property and infrastructure, our funds in these sectors too have ample scope to increase payments; in some cases their rental income is explicitly linked to inflation.

Legal & General, our sole remaining London-listed individual stock, has said it aims to raise its dividend by 3pc-6pc each year while the Biopharma Credit investment trust has announced a special payment of 4.5 cents on top of an ordinary dividend target of 7 cents a year. It should also be able to increase its income as the proceeds of matured loans are redeployed at higher interest rates.