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Inflation worries? Not if you chose these funds

David Brenchley, December 19 2021, The Sunday Times

A sharp rise in the cost of living will have forced many people to accept more risk in how they take investment income in retirement.

To ensure that their income keeps pace with their spending, many will be looking for investments that yield more than the present 5.1 per cent rate of inflation — no easy task considering that the rate is at a ten-year high.

A high yield is not always an attractive trait to look for in an investment because it can mean adding risk…

Focusing on yield alone can be problematic. The dividend yield — calculated by dividing a company or fund’s share price by its dividend per share — represents the payout that you will receive this year alone. If inflation remains above 4 per cent next year but your dividend stays the same, it will have lost value in real terms…

Investment trusts are a key component for many income-seeking investors because they can give you a ready-made, diversified portfolio of share investments that pay dividends…

When assessing dividend-paying investment trusts, it is important to dig down further than the headline yield. Scottish Mortgage, which invests in fast-growing companies, features on the list, having increased its dividend by 13 per cent on average over the past five years, yet it yields a minimal 0.3 per cent…

Last year was one of famine for income investors: one in three companies around the world cut their dividends and payouts fell by an average of 8 per cent, according to Janus Henderson, the fund management house that tracks global dividends…

There remain some areas of interest for income-seeking investors. Mick Gilligan from the wealth manager Killik holds City of London, which invests in large UK companies and yields about 5 per cent. The trust is “the gold standard for progressive dividend policies”, having raised its dividend for 55 consecutive years, he said.

However, James Carthew from QuotedData, a research firm, pointed out that the trust, managed by Janus Henderson’s Job Curtis, has often lagged behind its peers in the dividend growth stakes. Last year it managed only a 0.5 per cent increase, which followed a 2.2 per cent bump the year before.

Carthew prefers its peers Lowland and Law Debenture for income from UK equities.

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