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The UK trusts offering investors the highest yields

03 November 2014

Oriel Securities highlights a number of investment trusts, including Merchants Trust and Shires Income, that currently yield more than the FTSE All Share.

By Gary Jackson,

News Editor, FE Trustnet

Eight investment trusts that focus on UK equities are yielding significantly more than the FTSE All Share, according to Oriel Securities, although all but one are trading on a premium as income-paying assets remain much in demand.

The latest research from the broker shows 20 investment companies are currently yielding 4 per cent more more - up from 16 trusts back in May. New entrants to the list include the Murray Income and City of London investment trusts, both of which invest primarily in UK stocks.

Oriel Securities contributing analyst Iain Scouller said: “For investors prepared to take equity risk, these may be attractive for income investors at a time of exceptionally low interest rates.”

The All Share currently yields 3.4 per cent. Against this backdrop, which investment trusts could prove attractive for income investors?

The only UK trust on the highest yielders list that trades at a discount is Schroder Income Growth, which has been managed by Sue Noffke since July 2011. It is currently yielding 4 per cent.

Since Noffke took over the portfolio it has made a total return of 54.22 per cent, against a 44.47 per cent gain in the average trust in the IT UK Equity Income sector and 26.13 per cent rise in the FTSE All Share.

Performance of trust vs sector and index over manager tenure

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Source: FE Analytics

The £176m trust is trading on a discount of 0.91 per cent. Over the past 12 months, the discount has gone as low as 5.31 per cent but it also traded on a 2.25 per cent premium at times.

According to figures from the Association of Investment Companies (AIC), the trust has grown its dividend by an annual average of 2.10 per cent over the past five years.

It has 47 holdings, with its top 10 being made up of mega-caps such as Royal Dutch Shell, HSBC, AstraZeneca, GlaxoSmithKline and British American Tobacco. Its largest sector weighting is to financials at 31 per cent, followed by consumer services at 15.7 per cent and consumer goods at 14.3 per cent.

Schroder Income Growth has ongoing charges of 1.02 per cent and also charges a performance fee. It is currently 10 per cent geared.

Oriel Securities’ figures show the one of the UK trusts with the highest yielding is the £496m Merchants Trust. It trades on a 1.36 per cent premium, but this has ranged from a 0.66 per cent discount to a 2.71 per cent premium over the past year.

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Managed by Allianz’s Simon Gergel, the trust yields 5.1 per cent. The trust has grown its dividend for the past 32 years, with AIC figures showing its annual growth over the past five years has been 1 per cent.

One of Gergel’s key themes in the portfolio is taking a high exposure to large, multinational companies such as Royal Dutch Shell and HSBC, while the manager has also been buying recovery situations over recent months.

Since Gergel took over the trust in April 2006 it has gained 59.31 per cent on a total return basis, compared with the 50.16 per cent rise in its FTSE 100 benchmark and an average return of 47.12 in its IT UK Equity Income peer group.

Performance of trust vs sector and index over manager tenure

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Source: FE Analytics

Merchants Trust has ongoing charges of 0.59 per cent and does not carry a performance fee. At the moment it has gearing of 19 per cent.

Shires Income is also yielding 5.1 per cent. It currently trades on a 2.57 per cent premium, which has come in from its one-year high of 2.81 per cent but is significantly higher than the 4.90 per cent discount that has been seen over the past 12 months.

Aberdeen Asset Managers’ Ed Beal has managed the trust since April 2008 and since then it has returned 76.70 per cent. In comparison, the average trust in the IT UK Equity Income sector has made a total return of 59.47 per cent while the FTSE All Share is up 48.95 per cent.

Performance of trust vs sector and index over manager tenure

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Source: FE Analytics

The portfolio’s largest position is in Phil Webster’s Aberdeen Smaller Companies High Income investment trust, which has a 6.4 per cent weighting. The trust is up 140.14 per cent over five years but has suffered in the small and mid-cap sell-off this year.


Shires Income’s second biggest weighting is to Royal Dutch Shell, followed by AstraZeneca, British American Tobacco and HSBC.

The trust has ongoing charges of 1 per cent, has no performance fee and is 20 per cent geared.

Henderson High Income is currently yielding 5 per cent, according to Oriel Securities. The trust has grown its dividend by an annualised 0.7 per cent over the past five years and trades on a 3 per cent premium.

The investment trust resides in the IT UK Equity & Bond Income sector and is benchmarked against a composite of the FTSE All Share and Merrill Lynch Sterling Non-Gilts All Stocks indices.

Alex Crooke has been a manager of the five FE Crown-rated fund since January 1997, overseeing a 58.63 per cent total return against a 34.87 per cent gain in its average peer. David Smith has been a co-manager on the fund since the start of 2014.

Close to 91 per cent of the portfolio is invested in the UK, with 2.7 per cent in the US, 1.7 per cent in the Netherlands and 1.3 per cent in Ireland. Its largest holding is in British American Tobacco followed by National Grid and AstraZeneca.

Henderson High Income has ongoing charges of 0.70 per cent but charges a performance fee. AIC figures show it is 24 per cent geared.

Other UK equity trusts currently yielding 4 per cent or more include Dunedin Income Growth, Murray Income, F&C Capital & Income and City of London. All are trading on a 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.