Sustainable or ‘green’ investing via a Stocks and Shares ISA is a personal and often emotive choice. However, these days going green does not mean having to forego healthy returns.
Several sustainable investment trusts offer opportunities for a stable income. These closed-end entities, designed to invest in a range of sustainable assets, often iron out the volatility that individual sustainability shares may be subject to.
When selecting which ones to invest in, I examine their dividend yield and net asset value (NAV) per share, or total assets minus liabilities, divided by the number of issued shares. So, if a trust’s shares are trading at a discount, then it provides an indication that its share price is lower than its NAV per share.
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This discount suggests the market values securities/assets in the trust to be below their comprehensive NAV value. It may offer an opportunity for profiting through higher value realisation later in the trading cycle while banking potentially regular dividends.
My three top picks are:
1. NextEnergy Solar Fund
As its name suggests, NextEnergy Solar Fund (LSE: NESF) invests in large scale solar farms and related technologies like energy storage. This FTSE 250 fund currently has a 10.32% yield and aims to provide shareholders with regular quarterly dividend payouts.
It offers investors a diversified asset portfolio to mitigate risk. Additionally, most of NextEnergy Solar Fund’s long-term cash flows are inflation-linked via UK government subsidies, providing a further layer of income protection. Its NAV discount is currently at 32.78%.
2. Octopus Renewables Infrastructure Trust
Octopus Renewables Infrastructure Trust (LSE: ORIT) is an impact fund that combines income returns with capital growth, by primarily investing in a portfolio of renewable energy assets across the UK and Europe. With a diverse portfolio like many of its peers, this fund also participates in active renewables construction and management.
Through its investment manager, Octopus Energy Generation, it also plays an active role managing renewables construction risks and maximising the value of its portfolio. It prioritises social and environmental benefits alongside financial returns. It has a current yield of 8.5% and a NAV discount of 36%.
3. The Renewables Infrastructure Group
Managed by InfraRed Capital Partners, The Renewables Infrastructure Group (LSE: TRIG) was one of the first investment trusts to move into the sustainability sphere. More than a decade on from its 2013 listing, it is now a FTSE 250 company.
Its portfolio comprises of onshore and offshore wind farms and solar parks in the UK and Europe. This trust generates sustainable returns with a current yield of 7.24% and a NAV discount of 24%. Its managers also retain some of their portfolio’s capital each year through reinvestment of surplus cash after payment of dividends.
Pros and cons
Investors may need to do background research and gauge their suitability in line with investment objectives and risk appetite. For me, current holdings of all three trusts highlight long-term investments in sustainability and revenue reserves for maintaining dividends in learner times.
However, some investors may find their double-digit NAV discounts disconcerting despite their attractive pricing and dividend yields. Equity-focused trusts in other sectors may offer higher returns. Ultimately, their competitive dividend yields that match returns from mainstream investment trusts and low-cost entry barriers appeal to me. Therefore, I will be buying more of these three trusts’ shares.
