Equity income funds continue to be the preferred route for many when taking on risk assets and, with many of the biggest names in UK fund management sitting in this space, more often than not it is their open-ended funds which are mostly celebrated.
But with 10-year gilt yields having fallen to around the 1.7% mark, it makes sense to widen the search to include as many vehicles as possible, and that includes some of the less-heralded investment trusts.
In its latest research, Oriel Securities has listed what it has found to be the highest-yielding equity investment trusts – with a historic yield of 4% or higher – and it includes some interesting names, most of which trade close to NAV.
Go domestic
As might be expected given the UK’s dividend culture, many of the trusts at the top of the list invest domestically. This includes Henderson’s High Income Trust (yielding an impressive 6.6%) and its City of London Trust, which primary invests in blue-chip stocks and yields 4.7%. Schroders too fields a high-yielder in its Income Growth Trust (5.5%), while Merchants Trust, run by Simon Gergel, and the Aberdeen-backed Shires Income both sit near the top of the dividend pile with each yielding at 6.6%.
However, it is the equity income daddy Neil Woodford who sits is among the best performers on this list with his Edinburgh Investment Trust having posted three-year NAV growth of 40%. Of the 31 trusts that beat the 4% yield target, Edinburgh Investment Trust was the actually the only company to post positive one-year NAV growth – albeit only 1% – which can be seen as a reflection of the manager’s defensive stance.
The European leader
The highest-yielding trust? That was F&C fielded European Asset Trust with an impressive dividend of 7.4%, though the structure of this company means the board resets the rate of dividend annually and this is partly financed by effectively paying out capital. Crisis and volatility across the continent has also seen it drop 20% in performance terms over the past year.
It’s clear that intermediaries have plenty of options to consider in the closed-ended world to satisfy their clients’ income needs.
