Want to find the highestyielding equity trusts? Say goodbye to London
The City was once the place to go for big dividends but trusts that put their money to work overseas now pay more
London is no longer the obvious stock market for income. This, at least, is the conclusion we can draw from a recent study of the highest yielding investment trusts. The London market has long enjoyed a reputation as the home of big dividends – Wall Street, for example, is more focused on growth – but just nine of the 23 “equity income” trusts to yield 4pc or more invest predominantly in British companies, according to a study published last week by Stifel, the stockbroker.
Questor knows well that many readers seek income from their investments so this week we’ll look at what this research discovered about the investment trusts with the highest yields.
The most striking finding to our eyes was the sheer size of some yields. Henderson Far East Income yields 8pc, European
Assets pays 6.9pc and JP Morgan China Growth & Income 6.4pc. Not far behind are JP Morgan Japan Small Cap Growth & Income and Blackrock World Mining, which yield 6pc, Montanaro UK Smaller Companies on 5.9pc, Henderson High Income (5.7pc), Abrdn Equity Income (5.6pc) and JP Morgan Asia Growth & Income (5pc).
Of the trusts named above, only Montanaro UK Smaller Companies and Abrdn Equity Income invest primarily in London-listed stocks. Some of the more familiar names among UK equity income funds are, however, found further down the list. They include Murray Income, Merchants and Lowland, which all yield 4.8pc, City of London on 4.5pc, JP Morgan Claverhouse (4.3pc) and Schroder Income Growth (4.1pc).
Questor was also struck by the number of trusts on the list to pay a dividend at a fixed percentage of the net asset value. This normally entails paying the divi partly or wholly from capital. European Assets, JP Morgan China Growth & Income, JP Morgan Japan Small Cap Growth & Income, Montanaro UK Smaller Companies and JP Morgan Asia Growth & Income are among the funds to do this. It is done either to boost the income a trust gets from its holdings’ dividends or to pay a dividend from a portfolio of stocks that don’t normally produce income. An example of the latter is International Biotechnology, tipped here in the past: it invests in fast-growing biotech companies but manages to pay a high yield of 4.8pc by paying a percentage of NAV to shareholders each year as a dividend.
Bargain hunters will be interested in the range in discounts and premiums at which the trusts on the list trade – from a discount of 14.6pc to a premium of 3.5pc. The latter is enjoyed by
Blackrock World Mining, no doubt a reflection of high commodity prices, while the 14.6pc discount is found on Montanaro UK Smaller Companies.
We tipped this trust in 2017, since when it has produced a disappointing capital gain of 12.5pc. We do however need to bear in mind its big yield as a significant part of the total return. The shares have sold off markedly since last summer, doubtless in part because of growing aversion to the growth stocks in which the trust invests and in particular to smaller ones in times of market stress. We’ll hold on.
All figures quoted above are from May 30. The research excluded trusts whose market value was less than £100m.
Update: Honeycomb
The merger of this trust with its investment manager, Pollen Street, was voted through by shareholders last week. We have tipped the trust both here and for our Wealth Preserver portfolio. We will advise readers what to do in one of the latter columns soon.
Investment trust news
Simon Knott, who has managed Rights & Issues for 39 years, is to retire in September. The trust will cease to be “self-managed” and has appointed Jupiter Fund Management to run it; Dan Nickols will be the lead manager. Knott oversaw a 10,371pc rise in the trust’s NAV per share over his tenure; the FTSE All-share index managed just 610pc by comparison, the trust said.
Montanaro UK Smaller Companies
Hold
Capital gain has been lacklustre but the hefty yield boosts overall returns