Investment Trust Newsletter

Date: October 2018

Published by: Investment Trust Newsletter

Written by: Andrew McHattie


We have written about Bluefield Solar Income a few times in the newsletter, highlighting its 6%-plus dividend yield, reliability, and well-managed risks. After the fund’s final results for 2018, which most importantly confirmed the year’s total dividends at 7.43p per share, we spoke to Bluefield Partners’ managing director James Armstrong about the outlook.

These results marked the fund’s fifth year of operation since its IPO in July 2013, since when the shareholder total return has been over 50%, something of which James is justifiably proud. He says the fund has exceeded its targets over these five years, in spite of falling power prices, providing steady returns to investors that are uncorrelated with movements in the stockmarket. That last point is important if you are looking for diversification away from equity funds – Bluefield Solar derives its income from UK solar photovoltaic assets, with 60% of revenue in the form of regulated flows. It owns and operates solar farms across the UK, from Trethosa in Cornwall to Kellingley in Yorkshire.

James stresses that this is “an income product” – he does not want to become obsessed with the net asset value (113.3p at the end of June) – he wants to position the fund as a very defensive, very predictable income producer that simply provides a good sterling yield to shareholders. Based on the target dividend of 7.68p per share for 2019, the prospective dividend yield is 6.3%, which we think is very attractive.

Much of the fund’s revenue for next year is already locked in, thanks to fixed contracts that are already signed for power supply. Ironically enough, at a time when the trust’s assumptions (used to calculate the NAV) have been heading lower for long-term power prices, there has been a spike in short-term prices that is beneficial for revenue. From around £45/MWh of energy earlier this year, power purchase agreement prices are closer to £57/MWh now. Another potential windfall has been the sudden termination by the EU of a minimum import price for Chinese solar modules, effective as of last month, meaning a fall in the cost of new installations. James sees the solar market moving towards economic unsubsidised projects, and whilst virtually no new solar capacity is currently being built in the UK, he thinks the trust will have expansion opportunities again in the future. For now it is simply business as usual for Bluefield, delivering power to the UK network and growing dividends to its shareholders. For non-correlated income from a quality operator, we think BSIF is a solid defensive holding.