Murray International, JP Morgan Global and the Aberdeen Asian are among the 14 investment trusts in the top 3.5 per cent of highest-yielding funds within the AIC universe – all of which boast a historic yield of at least 4 per cent.
The research is from investment banking firm Stifel’s latest report, which looked at trusts invested in listed equities, excluding investment vehicles with market caps of less than £80m and trusts with multiple share classes.
Given the hunt for income amid a low interest rate, low yield environment, the firm says that investors prepared to take equity risk may wish to consider some of these trusts as a source of income.
“The strong increase in many share prices post the EU referendum has resulted in a decline in dividend yields. We calculate there are 14 trusts (with market caps in excess of £80m) investing in equities with a yield of 4 per cent or higher and this has declined from 19 back in May,” it stated.
“The list includes two funds (BlackRock Commodities Income & BlackRock World Mining) which have flagged dividend cuts in the current year, although even when the lowered dividend is taken into account, the yields are expected to be in excess of 4 per cent.”
AIC equity trusts with historic yield of 4 per cent or more
Source: Stifel
In terms of UK trusts, Simon Gergel’s Merchants investment vehicle yields 5.7 per cent and is currently trading on a 6.5 per cent discount, which the team at Stifel points out is close to its widest discount level over the past year of 7 per cent.
The trust has an AUM of £636.1m and focuses on higher-yielding blue-chips, although it is able to invest across the cap spectrum. Currently, the trust has a 63.3 per cent weighting in FTSE 100 stocks, 29.3 per cent in mid-caps, 4.3 per cent in small-caps and 3.1 per cent in cash.
Merchants has had a particularly tough time over recent years, particularly over the last three as it has underperformed its sector average by 16.31 percentage points with a return of 0.24 per cent.
Performance of trust vs sector and benchmark over 3yrs
Source: FE Analytics
Its performance has picked up over recent months although, in Gergel’s latest factsheet, he says that the trust’s exposure to medium-sized stocks held back returns to the end of June. Merchants is 19 per cent geared.
Stifel’s report also emphasises Schroder Income Growth, which has a 4 per cent yield fully covered by revenue earnings. The £216m trust is trading on a hefty 9 per cent discount compared to its three-year average discount of 3.66 per cent and, over Sue Noffke’s tenure, has performed broadly in line with its average peer and has outperformed its FTSE All Share benchmark by 16.29 percentage points with a total return of 59.37 per cent. It is 8 per cent geared.
In terms of high yielding trusts that have outperformed the FTSE All Share over three and six months, Stifel mentions Murray Income and Dunedin Income Growth, which have historical yields of 4.4 and 4.8 per cent respectively.
“Whilst dividend cuts cannot be ruled out in the UK equity sector in the next year, we do think that by using revenue reserves, these investment trusts should be able to deliver a more robust level of dividend than similar unit trusts, which do not maintain reserves,” it said.
Within the Asian and emerging markets spaces, Stifel says that there has been a strong recovery in performance and a number of trusts in these areas are offering particularly high yields.
It highlights Henderson Far East Income, which resides in the IT Asia Pacific Excluding Japan sector and yields 5.9 per cent.
The trust, which is 4 per cent geared, is headed up by Michael Kerley and currently holds 67.6 per cent of its holdings in the Pacific Basin, 24.4 per cent in Australasia and 6.5 per cent in Asia Pacific holdings.
While it has slightly underperformed its average peer over six and 12 months, it has started outperforming over three months and is in the top-quartile over one month.
Performance of trust vs sector over 3yrs
Source: FE Analytics
Henderson Far East Income, which has an AUM of £386m, is trading on a 3.2 per cent discount compared to its three-year average premium of 0.32 per cent.
With a yield of 4.4 per cent, Stifel also highlighted Aberdeen Asian Income which has delivered a total return of 42.38 per cent over the last six months, outperforming its sector average and benchmark by 7.08 and 5.95 percentage points respectively. Over the longer term it has fared less well, however, underperforming its sector average by more than four times over the last three years.
The £423m trust is trading on an 8.37 per cent discount compared to its three-year average discount of 2.46 per cent.
The final emerging market fund picked out in the report is JP Morgan Global Emerging Markets Income, according to Stifel, and its NAV total return has risen 24 per cent over the year to 8 August.
The £354m trust, which has outperformed its peer average over one, three and five years as well as over one, three and six months, is trading on a 2.1 per cent discount and is 5 per cent geared.
In terms of international trusts, the report points out that Bruce Stout’s £1.4bn Murray International trust has a yield of 4.4 per cent and has also seen a strong rebound in performance recently. It is in the top quartile over the last three, six and 12 months, more than doubling its sector average over the last year.
Performance of trust vs sector and benchmark over 1yr
Source: FE Analytics
The trust, which has its largest regional weightings in Asia Pacific, global emerging markets and North American stocks, is trading on a 4.9 per cent discount and is 12 per cent geared.
Stifel added: “European Assets, which invests in European mid and small caps, has a historical yield of 7.4 per cent, but it should be noted that this is primarily financed by a return of capital.”