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The highest yielding part of the market for investors

Investors in closed-ended funds looking for high yields will find only two sectors where the average yield is above 6 per cent.

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Investment trusts in the Leasing and Debt markets have the highest average yields in the universe of the Association of Investment Companies.

With interest rates still low and investors on the search for income, the Association of Investment Companies’ (AIC) universe of closed-ended funds is popular route for investors looking for alternative sources of income.

The top two sectors are yielding well over 6 per cent, with Sector Specialist: Leasing topping the list with an average yield of 6.9 per cent, while Sector Specialist: Debt follows close behind with an average yield of 6.5 per cent. 

Both are key areas of the non-banking lending private debt world, also often called Alternative Credit.  The debt sector includes a wide variety of funds such as BioPharma Credit, Funding Circle SME Income Fund, GCP Asset Backed Income, Hadrian's Wall Secured Investments, Honeycomb and P2P Global Investments.  The leasing sector has just three funds Amedeo Air Four Plus, DP Aircraft I and SQN Asset Finance Income.

Annabel Brodie-Smith, communications director of the AIC says speculation that an interest rate rise may take place in November but even if this happens interest rates remain historically low. 

"This is reflected by the strong investor appetite for income and a number of higher yielding specialist sectors are on a premium. The closed-ended structure is particularly well suited to investing in illiquid assets and these benefits were highlighted by the problems of the open-ended property funds after last year’s referendum." she said.

“Investors should be aware that sentiment can change and that income from investment companies is not guaranteed.  Investors should not buy on the basis of the headline yield alone. There’s a broad spectrum of risk and reward, so it’s crucial that investors do their homework, take a long-term view and if necessary, seek financial advice,” she added.

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