While the vast majority of equity income investors opt for funds in the IMA unit trust and OEIC universe, our research shows they are missing out on superior growth and yields in the investment trust space.
Three of the five best-performing vehicles across the IMA UK Equity Income, IT UK Growth & Income and IT UK High Income sectors are closed-ended, even though there are significantly more open-ended funds available to retail investors.
Top-five UK equity income vehicles over 10-yrs
| Name |
10-yr returns (%) |
| Perpetual Income & Growth Trust |
155.29 |
| Finsbury Growth & Income Trust |
154.85 |
| Invesco Perpetual High Income |
141.4 |
| Invesco Perpetual Income |
136.58 |
| Temple Bar Investment Trust |
124.12 |
Source: FE Analytics
The Perpetual Income & Growth Trust is the stand-out performer of the last decade, with returns of 155.29 per cent. The vehicle’s FTSE All Share benchmark returned 63.29 per cent during this time, with more volatility.
Manager Mark Barnett, who has headed up the fund since March 1996, has also outperformed his benchmark over one-, three- and five-year periods, though he hasn’t kept up with all of his peers.
Neil Woodford’s Edinburgh Investment Trust has the best record over five years, with returns of 31.46 per cent – almost twice as much as his £11bn Invesco Perpetual High Income fund. The closed-ended vehicle is currently yielding more than both of his flagship funds.
Performance of fund vs trust over 5-yrs
Source: FE Analytics
In the open-ended universe, Francis Brooke’s Trojan Income fund has provided Woodford with the biggest challenge, amassing 28.7 per cent over five years.
Investment trusts have an even better record over three years, accounting for eight of the 10 best-performing UK equity income vehicles and four of the top-five. These four – Small Companies Dividend Trust, Acorn Income, Aberdeen Smaller Companies High Income and Lowland Investment Company – have returned more than 100 per cent.
John McClure’s Unicorn UK Income fund tops the open-ended standings over three years, with 98.88 per cent, though this is more than 36 per cent less than his Acorn Income investment trust.
As well as having a higher total return, UK equity income trusts generally yield more than their open-ended counterparts. According to FE Analytics data, the average vehicle in the IT UK Growth & Income and IT UK High Income sectors has a one-year historic yield of 4.9 per cent, compared with 4.5 per cent in the IMA UK Equity Income sector.
Lower costs and gearing have played a large part in this outperformance and Unicorn’s Peter Walls says income trusts have another specific advantage over their open-ended rivals.
"[An open-ended] fund manager has to pay out 100 per cent of their yield, but an investment trust manager can hold back 15 per cent, making it easier for them to grow their dividend year-on-year," he explained.
"Having the freedom to smooth out the dividend puts less pressure on the manager, as they don’t have to look for high income names to maintain their level of income."
Walls also heads up the Unicorn Mastertrust portfolio, which is an open-ended fund of investment trusts. Acorn Income investment trust is one of his top-10 holdings.