With interest rates at historic lows and inflation still above the Bank of England’s target, a fund or trust that pays a dividend is a big bonus.
This, unsurprisingly, has pushed the top-rated trusts in the IT UK Growth & Income
and IT Global Growth & Income
sectors onto a premium.
The highly rated Murray International Trust
, for example, is currently trading at 5.2 per cent above net asset value (NAV), while Neil Woodford’s Edinburgh Investment Trust
is on a premium of 6.7 per cent.
If one looks outside of the sectors that specifically include “income” in their name, there are still many trusts that offer a competitive yield.
"If you're looking for income, given that the majority of trusts in these income sectors are on premiums, it's definitely worth looking outside of these sectors," said Kieran Drake, investment trust analyst at Winterflood Securities.
Here are three you may wish to consider for your portfolio:
Invesco Perpetual Select UK Equity – discount 10.3%, yield 4.6%
While the average trust in the IT UK Growth & Income sector is on a slight premium, the average trust in IT UK Growth is on a discount of 14.3 per cent.
Most of the 16 portfolios in the growth sector are yielding very little, but there are a select few, including FE Alpha Manager Mark Barnett’s
Invesco Perpetual Select UK Equity trust, that have a yield in excess of 4 per cent.
Performance of trust vs index over 5-yrs
Source: FE Analytics
Barnett’s trust also has a good record in the total return standings, beating its FTSE All Share benchmark over three and five years, with less volatility.
While the trust sits in the UK Growth sector, it is in a similar mould to Woodford’s Edinburgh Investment Trust, in that it has a high exposure to defensive, dividend-paying companies that tend to outperform in falling markets.
Barnett, who has headed up the portfolio since November 2006, currently holds GlaxoSmithKline, Vodafone and AstraZeneca in his top-10.
Invesco Perpetual Select UK Equity has a TER of 1.21 per cent and a yield of 4.6 per cent. Dividends are paid quarterly.
Jupiter Primadona Growth – discount 9.8%, yield 3.8%
Similar to the UK sectors, global income trusts tend to be far more expensive than their pure growth rivals; according to data from the AIC, the average vehicle in IT Global Growth & Income is on a premium of 1.2 per cent, compared with a discount of 9.4 per cent in IT Global Growth.
As its name suggests, the Jupiter Primadona Growth trust focuses on capital growth, but its dividend of 3.81 per cent rivals many of its competitors in the IT Global Growth & Income sector.
Managers Richard Curling
and Derek Pound
hold both single shares and collectives in the trust, including highly rated portfolios such as Findlay Park American and First State Asia Pacific Leaders
, as well as dividend-paying stocks such as Glaxo and Shell, in its top-10.
Performance of trust vs benchmark over 10-yrs
Source: FE Analytics
|Jupiter Primadona Growth IT
According to FE data, the trust has significantly outperformed its composite benchmark – split 75/25 between the FTSE All Share and FTSE World ex UK indices – over three and 10 years, but falls marginally short over five.
It has also had a soft patch over the last 12 months, which goes some way to explaining why its discount is so wide.
The trust has a TER of 1.43 per cent.
Manchester & London IT – discount 14%, yield 4.3%
While Mark Sheppard’s £75m portfolio is yielding a little less than Barnett’s, its discount of 14 per cent [as of 30 June 2012] puts its value closer to the sector average.
The trust is a little more adventurous than Barnett’s, with greater exposure to smaller FTSE 100 companies and also those in the FTSE 250.
Mid cap stock PZ Cussons, a manufacturer of personal healthcare products, is its biggest holding, with a 14.3 per cent weighting.
While it has a competitive dividend yield of 4.3 per cent, it is quite cyclically focused, with a number of energy and mining stocks in its top-10 holdings.
This focus has resulted in a difficult period for the trust of late; according to FE data, it is down 16.04 per cent over 12 months, compared with gains of 13.17 per cent from its All Share benchmark. The manager points to PZ Cussons, Weir and Xstrata – all top-five holdings – as particularly disappointing performers.
Performance of trust vs index over 1-yr
Source: FE Analytics
However, the manager says he is staying true to his focus on value stocks.
In a recent note to investors, he said: "Do we sell the stocks that are down and buy more Diageo and Unilever? We worry about it constantly but we remember 1999 when everyone was buying what was expensive and we didn’t, and we also recall a broker calling us in 2007 and berating us for selling down stock and all our property-based shares."
"It feels very lonely being a global growth equities optimist but, in our view, we are now deep value investors too based on the current valuations of most of our stocks."
Sheppard has a strong long-term track record, delivering 164.57 per cent over 10 years, compared with 106.17 per cent from the All Share.
His trust has a TER of 0.51 per cent.