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The highest-yielding equity income trusts revealed

07 May 2014

Analysts at Oriel highlight the mainstream, liquid investment trusts with a yield of 4 per cent or higher.

By Thomas McMahon,

News Editor, FE Trustnet

A correction in the market has opened up opportunities for yield-seeking investors in the investment trust sectors, according to Iain Scouller, investment trust analyst at Oriel, who says there are now 16 equity trusts with a yield over 4 per cent compared to just 10 in August.

Most of the highest yields available are outside the UK, however, with healthy yields available for investors in Asia and Latin America.

There are a number of top-rated UK portfolios offering more than 4 per cent payouts too, however, including Shires Income, run by Aberdeen, and Merchants Trust, run by Allianz.

“New entrants include Schroder Oriental Income, Murray International, Aberdeen Asian Income and Scottish American which made a return after dropping off the list in August,” Scouller said.

“In most cases this reflects falls in share prices and some dividend growth, resulting in higher dividend yields.”

The £330m Henderson Far East Income fund is the highest-yielding equity income fund at the current time, delivering a yield of 5.7 per cent. This is despite the trust trading on a 3 per cent premium to NAV.

Data from FE Analytics shows that the portfolio has made 11.67 per cent over the past three years, more than the average Asia Pacific ex Japan investment trust.

Performance of trust vs sector over 3yr

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Source: FE Analytics

The sector as a whole has suffered since the sell-off of last May inspired by the first talk of a withdrawal of quantitative easing by the US Federal Reserve, but the trust’s losses have been in line with the index.

The trust uses some unorthodox strategies to produce its high headline yield: it has significant positions in preference shares and also writes options on its stock for extra income.

The portfolio is invested mainly in China and Australia, and has its largest positions in the financials, industrials and telecom and technology sectors.

Schroder Oriental and Aberdeen Asian Income also deliver a healthy yield of 4.3 per cent and 4.1 per cent respectively with more orthodox strategies.

After the Henderson fund the second-highest yield is supplied by BlackRock Commodities Income, which has a specialised remit.

The £113m trust, managed by Olivia Ker and Tom Holl, invests in the equity of commodities and mining companies, and the occasional fixed interest investment to boost its yield.

The yield from these stocks is also substantial given the severe correction in the industry of the past three years.


The income payout has helped protect investors in this portfolio from the worst of the sell-off. However, expert opinion is split on whether the mining sector has hit rock bottom, meaning that investing in this sector has serious risks.

Performance of trust versus sector and index over 3yrs

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Source: FE Analytics

Investors might also want to consider the BlackRock World Mining Trust, managed by Evy Hambro and Catherine Raw, which is paying out 4.6 per cent at present.

The fund invests in mine royalties, and the royalty payments are passed onto investors supplying a regular stream of income over and above the dividend of the stocks that are being invested in.

The third trust yielding over 5 per cent is the £200m European Assets Trust, a smaller-company focused portfolio run by F&C which is currently delivering a 5.2 per cent yield.

This has been a good time to invest in this sector from a total return point of view: only the UK smaller company IMA sector has made more over three years.

European Assets is up 66.9 per cent in share price terms as the Euromoney Smaller Europe (ex UK) index is up 20.32 per cent.

Performance of trust vs sector and index over 3yrs


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Source: FE Analytics

The trust pays income from a mixture of dividends and capital reserves, and resets its policy annually.

It blends exposure to core Europe with holdings in peripheral Europe: the portfolio is 20.5 per cent invested in Germany, 18.1cnet in Ireland and 13 per cent in Italy.

The highest-yielding UK-focused trust is the £187m Henderson High Income trust, a multi-cap income fund run by Alex Crooke and David Smith.

The fund sits in the equity and bond sector, however, although its weighting to that area was only 13.3 per cent at the time of the last annual report, including 1.2 per cent in preference shares. It has five FE crowns.


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Source: FE Analytics

Shires Income and Merchants Trust both yield 4.7 per cent. However, Shires also retains a weighting to fixed interest, with 25.5 per cent invested in bonds.

The largest holding is 7.4 per cent in the Aberdeen Smaller Companies High Income trust at 7.4 per cent, while the trust also holds large-cap equities directly.

The £533m Merchants Trust is a more straightforward large-cap portfolio benchmarked against the FTSE 100. It has large weightings to the big oil and gas, pharmaceutical and tobacco companies, with large position sizes making it concentrated.

Over three years it has substantially outperformed the FTSE 100, however, returning 41.93 per cent to the former’s 27 per cent. It is trading on a 1.6 per cent premium.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.