Investment trust broker Oriel compiled a list of closed-ended equity funds that pay a dividend of more than 4 per cent.
Analyst Iain Scouller explained the motivation for the study by saying: "With investors continuing to be hungry for income as 10-year gilt yields remain around 1.7 per cent, we are highlighting the higher-yielding funds for income seekers who are prepared to take some equity risk."
Five crown-rated Edinburgh Investment Trust is one of the best-known trusts to be highlighted in the study.
Scouller added: "Edinburgh Investment Trust has a yield of 4.4 per cent and is managed by Neil Woodford with a defensive bias in the portfolio, which has not been particularly helpful to relative performance over the last few months but has worked well over the last three years."
City of London Investment Trust, yielding 4.5 per cent, Schroder Income Growth on 4.7 per cent, and Dunedin Income Growth Trust also appear among the top-yielding UK equity funds identified by the report.
The Dunedin trust is the highest-yielding in this category, at 5.3 per cent. It trades at NAV.
Some of the largest and best-known investment trusts in the UK offering yields in excess of 4 per cent are available on a discount to NAV, according to the report.
"There appears to have been a widening of discounts on a number of these higher-yielding trusts in recent weeks," Scouller continued.
"We think this may reflect some rotation in the market away from higher yield in favour of other sectors such as small/mid cap and Europe – which have seen discounts narrowing in recent months."
Five highest-yielding investment trusts
| Trust | Yield |
| European Assets | 6.4 |
| Merchants | 6.2 |
| Henderson High Income | 6.1 |
| Shires Income | 5.7 |
| Henderson Far East Income | 5.4 |
Source: Oriel Securities
Merchants Trust, a UK blue chip investor that yields a meaty 6.22 per cent, sits in this group on a discount of 10 per cent, alongside British Assets Trust, which invests in a globally diversified portfolio with a heavy UK tilt – yielding 5.12 per cent – at a discount of more than 7 per cent.
Both trusts have outperformed the FTSE 100 and the AIC UK Growth & Income sector over three years, returning 31.5 per cent and 27.84 per cent respectively.
Funds investing overseas that made the list include European Assets Trust, yielding 6.4 per cent, and Henderson Far East, yielding 5.4 per cent.
Performance of trusts vs sector over 3-yrs
Source: FE Analytics
Scouller said the European fund’s yield may be partly synthetic, because it stems from the board’s policy of financing dividends from capital, adding: "This method of generating yield may become more widespread following the rule changes which allow ‘capital dividends’."