With UK interest rates currently well below the inflation rate, cash is a big loser. Thankfully though, there are some investments that could actually benefit from higher inflation, and today I’m going to take a closer look at two of them.

Property

Property investments are a natural hedge against inflation, since landlords have the ability to periodically review rents to reflect unexpected bouts of inflation, among other market factors. And as property represents a ‘real’ asset, property values have held up well against inflation over the very long term.

Landlords can also get added protection through the linking of rent increases to the rate of RPI-inflation. Secure Income REIT (LSE: SIR) is one such commercial property landlord which has taken advantage of these RPI-linked leases.

The REIT has much greater income predictability than most property portfolios, given that 86% of its rental income comes from leases which benefit RPI protection, while a further 13% have fixed uplifts.

Vacancy risk

It has also protected itself from the risk of vacancy by sticking only to long-term lets with strong covenants. With a weighted average unexpired lease term of 22.2 years, and no break options, it has one of the longest average unexpired lease lengths in the REIT sector. This means its rental income should hold up well even during if economic conditions turn sour.

One downside, however, is its high level of tenant concentration, which could increase the risks resulting from a potential default by a single large tenant.

Based on its Friday’s share price of 373p, the REIT currently offers a yield of 3.7% and trades at a 1% premium to its NAV.

Renewable energy

Infrastructure investments are another way to beat inflation, and in this sector, I’m keen on the Bluefield Solar Income Fund (LSE: BSIF). It is one of the biggest solar investment trusts in the UK, with a total net asset value of roughly £400m.

It has a great deal of protection against rising inflation, since it earns government subsidies, via Feed-in tariff and CfD subsidies, that are directly linked to the rate of inflation. In fact, management is so confident that rising inflation would benefit its earnings potential that it has in place a dividend policy which is linked to the rate of RPI inflation.

Reflecting the accelerating pace of inflation, its dividend growth has also accelerated. For its 2017 financial year, the company paid a total dividend of 7.43p per share, reflecting the RPI increase of 3.5% in July 2017.

The company also has some protection against rising interest rates since a majority of its debt is secured on fixed interest rate terms. This would mean that should the Bank of England attempt to combat higher inflation by raising interest rates, its average cost of debt would not rise by much — limiting the impact of a potential drag on its earnings.

Shares in the fund currently offer investors a yield of 6.6%.

The post 2 inflation-busting dividend investments for a starter portfolio appeared first on The Twelfth Magpie.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

As such, I’m considering these two high-yielding investment trusts to add yield to my portfolio.

Consumer loans

Investing in consumer loans is one answer to beating low interest rates and one easy way to get access to the growing consumer loan market is simply to invest in a fund such as the Honeycomb Investment Trust (LSE: HONY).

The £300m fund targets annual returns on loan investments in excess of 10% — and that’s after allowing for loan losses. With such attractive potential returns, it is backed by leading investors, which include Invesco Perpetual’s Mark Barnett and Woodford Investment Management’s Neil Woodford.

Honeycomb has only been operating since December 2015, but in that short time period it has delivered significantly higher returns than its better-known peer P2P Global Investments. Since its inception, Honeycomb has delivered total NAV returns of 15%, while P2P returned just 7% over the same period.

The gap in the performance of the two alternative credit investment trusts is explained by P2P’s global diversification, which has exposed it to rising default rates in the US and increasing currency hedging costs. Meanwhile, Honeycomb has benefitted more from favourable market conditions in the UK, because unlike its larger globally diversified peer, the fund is primarily UK-focused.

On the downside, shares in the Honeycomb trust trade at 15% premium to its net asset value, while most of its peers trade at a modest discount. Nevertheless, at today’s share price, Honeycomb still yields an impressive 7.7%.

The fund has a management fee of 1% and there is also a 10% performance fee subject to a 5% preferred return hurdle and high watermark.

Renewable energy

Infrastructure is another popular alternative asset class for investors looking to generate income. Their popularity with pension and sovereign wealth funds is well-known, but it’s not just big institutions that can invest in them. There are a number of infrastructure investment trusts on the market today, including a few invested in renewable energy assets.

The Bluefield Solar Income Fund (LSE: BSIF) is one of the biggest solar investment trusts, with a total net asset value of roughly £400m. It invests primarily in large ground-based solar energy assets in the UK, and has a total generating capacity of 441.5 megawatts.

With physically-backed assets and revenues largely uncorrelated to traditional markets, investing in renewable energy projects can offer investors stable, long-term returns. At today’s share price, the fund has a current dividend yield of 6.4%, with Bluefield Solar Income Fund now trading at a premium to its net asset value of 4%.

But although its income prospects are certainly tempting, investors should not expect too much on the capital growth front. The fund pays out nearly all of its earnings as dividends, meaning new investments are primarily funded by raising fresh equity and borrowings.

The post 2 high-yielding investment trusts for income investors appeared first on The Twelfth Magpie.

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• 10% dividend yields! 3 dirt cheap stocks to consider in June?

Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.