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Dare to be different

Faith Glasgow, AIC Compass, July 2022:

One of the big attractions of investment companies for many retail investors is the wide range of asset classes to which they offer access: not just equities but property, infrastructure, private equity and a number of even more esoteric specialist investment opportunities including sectors dedicated to music royalties, forestry, and asset leasing companies.

These sectors operate in very different spheres from each other, but for private investors they all offer a key benefit in the shape of relatively low correlation to stock markets – which makes them a great choice for anyone wanting to build a more robust balanced portfolio…

Hipgnosis Songs Fund and Round Hill Music Royalty Fund both buy up music artists’ catalogues for a lump sum, and then collect a share of the royalties. These may be generated through various sources – principally streaming services such as Spotify, but also live concerts, CD sales and film usage. Investors enjoy a mix of capital growth (from increases in catalogue values over time) and reliable yields of around 4-5%.

James Carthew, head of investment company research at QuotedData, points out that both companies are currently sitting on “fairly chunky” discounts. “There’s no good reason for it that I can fathom,” he adds. It’s possible that investors may have been spooked by the idea that Spotify could lose subscribers as people tighten their belts in the face of inflation pressures – but that doesn’t appear to be the case in practice.

Carthew points to the resurgence of interest in Kate Bush following the use of one of her songs on the TV programme, Stranger Things. “Suddenly a younger generation is getting into her entire back catalogue, so I think the argument for these trusts is still robust, and now seems a relatively good time to buy.”

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