Investment trusts delivered a record £5.5bn in dividends in the year to 31 March with a 15.4% rise in payouts underpinned by a big increase in income from listed infrastructure and venture capital trusts, while equity closed-end funds largely maintained distributions after the pandemic.

According to the latest Link Group Investment Trust Dividend Monitor report, ‘alternative’, non-equity funds were the income stars of the last financial over year with payouts leaping 25% to £3.65bn.

Equity trusts proved resilient after the widespread dividend cuts and suspensions in 2020, holding distributions steady at £1.85bn. The report showed the peak-to-trough decline in dividends from trusts invested solely in listed equities was only 1.9% as many fell back on reserves to maintain or slightly increase payments to shareholders.

Link expects dividends from equity trusts to rise a modest 4% to £1.92bn over the next 12 months, as their boards use the sharp recovery in investment income they receive from companies to rebuild their depleted revenue reserves.

Away from public equities, venture capital trusts (VCTs) maintained their record of generating big dividends from unquoted companies with an impressive 65.7% jump in payouts, handing out £556m following the disruption from coronavirus.

Renewable energy infrastructure investment companies followed with a 38.3% rise in distributions as their revenue lines benefited from rising inflation and surging power prices.

All together, alternative asset trusts investing in property, venture capital and renewables accounted for 80% of the overall increase in dividends from closed-end funds, Link found.

A little over a decade ago, alternative investment trusts contributed less than a third of dividends paid, and payouts were nine times larger in 2021 than in 2010, showing just how quickly they have grown in importance as sources of income.

Ian Stokes, managing director of corporate markets for the UK and Europe at Link, said the alternatives have ‘rapidly expanded as new investment opportunities have opened up in response to investor demand’.

‘VCTs have proved very popular with investors in recent years who have been attracted by the generous tax breaks,’ he said.

‘A reduction in the lifetime allowance on pension funds is catching more and more savers with punitive tax on their pension pots. The measure has deterred pension saving among wealthier individuals who have looked elsewhere for tax-efficient options for their capital.’

He said the fact income and capital gains are tax free as well as the 30% tax credit on gains afforded by VCTs means ‘they are the first port of call for many investors now’.

David Smith, manager of Henderson High Income (HHI ), said it had been a ‘difficult period’ for equity income investors ‘given the sheer amount of dividend cuts, suspensions, and postponements due to the pandemic’.

However, the investment trust structure ‘has lent itself well to investing in alternative income-generating assets’.

‘These are typically private and illiquid assets that aren’t readily available on public markets but through investment trusts, investors can diversify their income in assets that are usually non-correlated to equity markets,’ he said.