Investors searching for yields of 4 per cent or more should look no further than the investment trust space where a number of attractively priced opportunities can be found, according to Wise Funds founder Tony Yarrow. 
Yarrow (pictured), co-manager of the £110.2m TB Wise Multi-Asset Income fund, said as a value investor he sees many opportunities in the investment trust space where discounted valuations can often be found.
“Investment trusts are a happy hunting-ground for value investors,” he said. “When assets are trading at distressed levels, the investment trusts which invest in those areas are normally at discounts, providing us with a further layer of value.”
However, it’s not just cheap trusts that the manager looks for, noting that a trust needs to meet a number of other criteria for inclusion in his income strategy.
For example, contenders must have a capable and dedicated team with long experience of running the strategy and a distinctive style with consistent performance characteristics.
Typically, trusts in the portfolio will have good long-term performance marred by weak returns in the past couple of years, albeit with a more distinct pick up in recent months.
In addition, managers will have a strong level of conviction in the current market reflected in a relatively high concentration in their top-10 holdings, which are likely to be at least 25 per cent of the portfolio, and a modest amount of gearing.
For the TB Wise Multi-Asset Income fund, Yarrow and co-managers Vincent Ropers and Philip Matthews seek trusts with a yield of at least 4 per cent.
Below, the manager highlights 10 trusts holdings in the portfolio.
Schroder Income Growth
First up is the £245.5m UK equity income strategy Schroder Income Growth, managed by Sue Noffke since 2011 and yielding 4.2 per cent. During the past five years it has made a gain of 39.42 per cent (to 12 December) compared with a return of 33.5 per cent for the average IT UK Equity Income peer.
Performance of trust vs sector & benchmark over 5rys
Source: FE Analytics
The trust targets real growth of income – in excess of inflation – and capital growth. Over the past five years the trust has grown its payout by 23 per cent. It is currently trading at a discount to net asset value (NAV) of 5.4 per cent. It is 14 per cent geared.
Henderson High Income
Next up is Henderson High Income, which invests in UK equities and bonds and has been managed by David Smith since 2014. The trust has a yield of 5.4 per cent and is currently trading at a premium to NAV of 2.1 per cent. Over the past five years it has grown payouts by 11 per cent.
The £235.3m trust has made a total return of 40.7 per cent over five years compared with a return of 46.07 per cent for the average IT UK Equity & Bond Income peer. The trust is 26 per cent geared.
Princess Private Equity
A private equity trust investing mainly in Europe and the US, Princess Private Equity has a yield of 5.6 per cent and is currently trading at a discount of 12.5 per cent. It is not geared.
Yarrow said, like Henderson High Income, the £838.1m trust has grown its yield by 11 per cent over the past five years.
Princess Private Equity has made a total return of 110.77 per cent since December 2014, against a 56.02 per cent gain for the average IT Private Equity peer.
Ecofin Global Utilities & Infrastructure Trust
Investing in the utility and infrastructure sectors globally, Ecofin Global Utilities & Infrastructure Trust has been managed by Jean-Hugues de Lamaze since launch in September 2016. The £161.8m trust has a yield of 4.3 per cent and has made a return of 55.38 per cent since launch. It is currently trading at a discount of 6.9 per cent to NAV.
Aberdeen Asian Income
The next trust highlighted by Yarrow is Aberdeen Asian Income, overseen by veteran emerging markets specialist Hugh Young and his team since 2005. The trust yields 4.4 per cent and has grown it by 14 per cent over the past five years.
Over the past five years, the trust has made a total return of 31.1 per cent, underperforming the MCSI AC Asia Pacific ex Japan benchmark’s 59.55 per cent gain and a 58.47 per cent return for the average IT Asia Pacific ex Japan peer. The trust is currently trading at a discount of 6.9 per cent.
European Assets Trust
A European equities trust overseen by BMO Global Asset Management’s Sam Cosh, European Assets Trust specialises in small- and mid-cap equities. The £405.1m trust has a high yield of 5.8 per cent and can currently be picked up on a discount of 6.5 per cent.
Performance of trust vs sector & benchmark over 5rys
Source: FE Analytics
Since December 2014, European Assets Trust has returned 47.36 per cent significantly underperforming the peer group (up 98.4 percent) and the EMIX Smaller European Companies ex UK benchmark (79.27 percent).
BlackRock World Mining Trust
Managed by well-known commodities specialist Evy Hambro and co-manager Olivia Markham, the £612.5m BlackRock World Mining Trust has a yield of 6 per cent and is available on a 12.5 per cent discount. The trust invests in blue-chip mining companies like BHP Billiton and Rio Tinto, but also has some investments in fixed interest, royalties and derivatives.
During the past five years BlackRock World Mining is up by 65.82 per cent, slightly behind its EMIX Global Mining benchmark.
Middlefield Canadian Income
Investing in quoted Canadian companies but with a remit allowing up to 40 per cent to be held in US equities, Middlefield Canadian Income is managed by Dean Orrico. The £119.6m trust yields 4.9 per cent. It has returned 34.75 per cent over the past five years and trades at a discount of 8.3 per cent.
BlackRock Frontiers Investment Trust
Another BlackRock strategy, this trust cannot invest in any country which is neither part of the MSCI World Index of developed markets nor one of the eight largest countries by market cap in the MSCI Emerging Markets index, said Yarrow.
BlackRock Frontiers Investment Trust is managed by Sam Vecht and Emily Fletcher and has a yield of 4.4 per cent.
Performance of trust vs sector & benchmark over 5rys
Source: FE Analytics
It has returned 51.29 per cent over five years compared with a 27.31 per cent gain for the average IT Global Emerging Markets peer. It can be currently be picked up at a discount of 8.7 per cent.
Ediston Property Investment Company
Finally, Yarrow highlighted a UK commercial property trust: Ediston Property Investment Company. The £184m trust has been managed by Calum Bruce since launch in October 2014, during which time it has made a return of 7.75 per cent.
It has a yield of 6.5 per cent, is 43 per cent geared and is currently available on a discount of 43 per cent.