“Overall, dividend yields in aircraft leasing are attractive and total returns have been stronger than those offered by the broader equity markets. It is extremely unlikely that investors would be able to find an 8.25 per cent yield in credit markets without taking significant credit risk, and the aircraft leasing vehicles are backed by the physical planes, which will always be worth something,” he adds.
| An alternative investment – HealthCare Royalty Trust |
Clarke Futch, investment manager of the Healthcare Royalty Trust and co-founder of HealthCare Royalty Partners, explains the attraction of a niche asset class: Article continues after advert “Royalty financing is an alternative means by which healthcare companies can raise non-dilutive capital or a way for universities or inventors to capitalise on their research and development work. A royalty investor typically provides upfront capital in exchange for a percentage of the future revenues or cashflows from the sales of the relevant healthcare products. “In 2015, the royalty monetisation market experienced its second strongest year on record with more than $5.5bn (£4bn) in transactions. Despite rapid growth, royalty investing remains only a small fraction of all biopharmaceutical capital raising. From 2009 through 2014, it is estimated royalty investments represented less than 3 per cent of total capital markets activity, demonstrating the relative immaturity of royalty investing and the potential for further significant growth. “Healthcare royalties are an attractive asset class because of their ability to deliver yield in the form of regular quarterly cashflows, which are largely non-correlated to the broader equity and bond markets. “Royalties are derived from pharmaceutical sales, which surpassed $1trn in 2014, and have proven to be resilient during periods of economic and market uncertainty. This non-correlation was particularly evident during the global financial crisis as pharmaceutical sales continued their steady growth despite record volatility across the broader equity and credit markets.” |
Meanwhile, Fidelity associate director of investment trusts Alex Denny points out that trusts have a long history of change, “and it is times like this when adaptability must really be shown by the sector”.
He explains: “We are now seven years into a market cycle in which many trusts have enjoyed something of a renaissance. New issuance has been strong and discounts have been narrowing year on year, with premiums persistent in many income-paying sectors.
“There are many reasons for optimism among managers. Investment trusts are able to access asset classes not open to traditional Ucits funds – such as real estate, infrastructure, debt or alternatives, all providing valuable diversification from equities in both income and growth areas. The list of ‘sector specialist’ trusts seems to grow longer with weird and wonderful options for diversification.”
