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Why Magellan Global Trust could be a good option for income

Many investors, particularly retirees, are on the lookout for income. The best interest rate offered by banks around the country is currently 3%. This isn’t terrible, but it’s a low return and offers no growth if you need to spend that income.

I think people are better off investing in shares for income. However, that doesn’t mean simply going for the share with the biggest dividend yield, we’ve seen that shares like Telstra Corporation Ltd (ASX: TLS) and G8 Education Ltd (ASX: GEM) can reduce the dividend.

I think one good option for income could be Magellan Global Trust (ASX: MGG), which is a listed investment trust (LIT) run by Magellan Financial Group Ltd (ASX: MFG).

Income

One of the key traits of Magellan Global Trust is that it aims to pay a 4% yield on the net asset value (NAV) per security. I think 4% is a reasonable figure, it offers decent income now and means that there should be good capital growth over time, which would grow the distribution.

Holdings

Magellan Global Trust looks to invest in the best businesses in the world. It must be said that its portfolio is US-focused, but that’s where most of the best global companies are listed.

Its top holdings are Facebook, Alphabet (Google), Lowe’s, Starbucks, HCA (a large hospital business), Apple, Wells Fargo, Visa, Kraft Heinz and Oracle.

I’d expect all of those shares to perform better than the global indexes over the long-term and do better in a market downturn.

Defensive  

Magellan Global Trust may have lots of quality holdings, but it isn’t an index fund. Magellan is able to hold a significant amount of cash if it wants to for security and opportunities. In its latest monthly update, Magellan Global Trust said that 23% of the portfolio was in cash.

Foolish takeaway

It may not have a cheap management fee, but it has outperformed its benchmark after fees since inception by 0.1% in October last year. I believe it’s a quality manager and I’m looking to increase my holding over time to get international diversification.

If you want other quality growth yet defensive ideas, you should read about these top stocks.

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Motley Fool contributor Tristan Harrison owns shares of MAGLOBTRST UNITS. The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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