High-income trusts at bargain prices
FE Trustnet looks at the high-yielding investment companies that are currently trading on a significant discount.
By Mark Smith, Senior Reporter, FE Trustnet
Thursday June 07, 2012
In a low growth and low interest rate environment such as this one, income has become the name of the game. The extra boost investors receive on their equity investments from dividends should stand them in good stead while the global economy remains sluggish.
The rush for income-paying investments means that assets with a decent yield are commanding a premium on the market and most investors are happy to fork out a little more for the extra quality.
However, there are a few that offer a decent yield at an attractive discount for those prepared to look away from the beaten track.
Aberdeen Smaller Companies High Income
This £25.4m investment trust is managed by Phil Webster and is one of only a handful of funds focused on small companies that pay an attractive and growing dividend.
Data from FE Analytics
shows that it has a headline yield of 5.22 per cent, well above that of the average FTSE 100 company.
The trust tends to perform better in rising markets, with a return of 74.13 per cent over the last three years, compared with 30.65 per cent from its FTSE Small Cap ex IT benchmark.
Over the medium-term, however, the investment trust has had some difficulties, losing 43.22 per cent versus a loss of 31.64 per cent from the benchmark.
Performance of trust vs sector over 3-yrs
Source: FE Analytics
It is currently trading at an attractive discount of 19.4 per cent.
"Small cap investment trusts fall off the radar for most people," said Simon Elliott, investment analyst at Winterflood Securities.
"Aberdeen Smaller Companies High Income was forced to cut its dividend a few years ago but it should now be sustainable. Small cap portfolios invariably trade at discounts, it’s a reflection of lower levels of liquidity."
The Acorn Income investment company, managed by FE Alpha Manager John McClure, has a similar small cap approach and is trading on a discount of 20 per cent. Our data shows that it has returned 128.86 per cent over the last three years and has a yield of 5.67 per cent.
Albany Investment Trust
The £24m Albany Investment Trust has underperformed its FTSE All Share benchmark over the last three, five and 10 years.
However, it has an attractive yield of 4.34 per cent and is currently trading at a discount of 20.4 per cent. When the global economy improves and there is more appetite for risk assets there will be a good chance of this narrowing.
"There are opportunities for investors who are prepared to dig around a bit," said Elliott. "The yield on Albany is attractive but the small cap focus means that it is unloved by investors and trading at a wide discount."
OLIM Value & Income Trust
The £77.9m OLIM Value & Income Trust is not the most well-known investment company but it has an attractive headline yield of 4.34 per cent.
Our data shows that it has returned 71.06 per cent over the last three years compared with 36.47 per cent from its FTSE All Share benchmark.
Trading at a discount of 20.4 per cent, the trust is out of favour among investors, but Elliott says that this is more likely to be a function of the trust’s structure rather than its performance.
"It’s a hybrid approach where Angela Lascelles manages the equity income portion of the portfolio and Lord Oakeshott runs a property portfolio alongside it," he said.
"For this reason it is off many people’s radars. It’s not the plain vanilla equity income fund that people are seeking out."
The lack of demand could represent an opportunity for investors but Elliott warns that the fund does contain some expensive debt.