The income investment trusts investors are sizing up
10th January 2023 09:56
by Kyle Caldwell from interactive investor
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The hunt for income has been increasing following interest rate rises. Kyle Caldwell names the investment trusts that have seen an uptick in demand.
Dividend strategies have become more appealing to investors in response to interest rate rises and high levels of inflation.
As our research revealed last month, seven of the nine new entries in our top 20 most-bought investment trusts of 2022 have an income focus. The seven trusts climbing the rankings are: Greencoat UK Wind (LSE:UKW), Renewables Infrastructure Group (LSE:TRIG), Gore Street Energy Storage Fund (LSE:GSF), European Assets (LSE:EAT), Henderson Far East Income (LSE:HFEL), Merchants Trust (LSE:MRCH), and Murray International (LSE:MYI).
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Separate research released this week by the Association of Investment Companies (AIC) shows the same trend of investors increasingly sizing up income-focused mandates. The investment trust trade body revealed the 20 most-viewed investment companies on its website in 2022.
It says that income was a key theme, with 11 of the 20 most-viewed companies being “dividend heroes”, meaning they have increased their dividends for at least 20 years in a row. A further five have increased dividends for at least 10 years in a row. Overall, nine of the 20 belong to equity income sectors.
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All five of the new entrants in the top 20 most-viewed trusts have an income focus: BlackRock World Mining Trust (LSE:BRWM), abrdn Equity Income Trust (LSE:AEI), Aberdeen Diversified Income & Growth (LSE:ADIG), TR Property (LSE:TRY) and CQS New City High Yield (LSE:NCYF).
There was a notable interest in high-yielding investment companies, as investors attempted to weather the inflation storm. The AIC points out that the average yield of the 20 most-viewed companies is 4.47%, compared to 3.55% for the average investment company.
High yields offer investors the prospect of higher income today, but there are no guarantees that this will result in market-beating returns from a total return perspective – when both capital and income are combined. The three highest-yielding among the top 20 most -viewed trusts, with yields of 9.6%, 8.7%, and 8.5% respectively, are: European Assets (LSE:EAT), Henderson Far East Income (LSE:HFEL), and CQS New City High Yield.
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Income-paying investment trusts have a particular attraction for investors who want a regular cash flow, because they don't have to distribute all the income generated by their assets every year.
Investment trusts can hold back up to 15% each year, which means they can build up a ‘rainy day’ reserve to bolster dividend payouts in leaner years. In contrast, open-ended funds have to return to investors all the income generated each year.
Exiting the top five most-viewed table were Edinburgh Worldwide (LSE:EWI), Monks (LSE:MNKS), RIT Capital Partners (LSE:RCP), Scottish Investment Trust and RIT Capital Partners (LSE:RCP). Last year, Scottish Investment Trust merged with JPMorgan Global Growth & Income (LSE:JGGI).
The decline in demand for growth-focused strategies chimes with our own data. Such trusts have seen their performance come under pressure due to high inflation and interest rate rises devaluing the future earnings of growth shares.
Top 20 most-viewed investment companies in 2022
| 2022 rank | 2021 rank | Company name | AIC sector | One-year total return (%) | Five-year total return (%) | 10-year total return (%) | Yield (%) |
|---|---|---|---|---|---|---|---|
| 1 ↑ | 2 | City of London (LSE:CTY) | UK Equity Income | 9.4 | 19.3 | 98.1 | 4.87 |
| 2 ↓ | 1 | Scottish Mortgage (LSE:SMT) | Global | -45.7 | 65 | 410.5 | 0.5 |
| 3 ↑ | 5 | Merchants Trust (LSE:MRCH) | UK Equity Income | 5.5 | 49.2 | 144.1 | 4.88 |
| 4 = | 4 | Murray International (LSE:MYI) | Global Equity Income | 20.7 | 32.2 | 96.8 | 4.12 |
| 5 ↑ | 6 | F&C Investment Trust (LSE:FCIT) | Global | -0.9 | 52.2 | 233 | 1.48 |
| 6 ↑ | 13 | JPMorgan Global Growth & Income (LSE:JGGI) | Global Equity Income | -5 | 57.2 | 266.6 | 3.99 |
| 7 ↓ | 3 | Bankers (LSE:BNKR) | Global | -17.8 | 25.6 | 165.2 | 2.2 |
| 8 ↑ | 9 | Henderson Far East Income (LSE:HFEL) | Asia Pacific Equity Income | 0.8 | 1.4 | 57.8 | 8.71 |
| 9 ↑ | 14 | Caledonian Trust (LSE:CNN) | Flexible Investment | -5.2 | 49.3 | 201.1 | 1.8 |
| 10 ↑ | 16 | Scottish American (LSE:SAIN) | Global Equity Income | -3.5 | 59.9 | 205.8 | 2.62 |
| 11 ↑ | New entry | BlackRock World Mining Trust (LSE:BRWM) | Commodities & Natural Resources | 26 | 131 | 101.9 | 6.24 |
| 12 ↑ | New entry | abrdn Equity Income Trust (LSE:AEI) | UK Equity Income | 6.2 | 0.4 | 74.6 | 6.41 |
| 13 ↓ | 12 | Law Debenture Corporation (LSE:LWDB) | UK Equity Income | 0.4 | 51.4 | 155.6 | 3.76 |
| 14 ↓ | 7 | Alliance Trust (LSE:ATST) | Global | -5.8 | 40.1 | 204.7 | 2.53 |
| 15 ↑ | 15 | Murray Income Trust (LSE:MUT) | UK Equity Income | -4.1 | 31.6 | 87.6 | 4.32 |
| 16 ↑ | 19 | European Assets (LSE:EAT) | European Smaller Companies | -28.5 | -1.2 | 146 | 9.61 |
| 17 ↓ | 10 | Brunner (LSE:BUT) | Global | -6.1 | 47.5 | 211.6 | 2.11 |
| 18 ↑ | New entry | Aberdeen Diversified Income & Growth (LSE:ADIG) | Flexible Investment | -2 | -1.1 | 24.3 | 6.02 |
| 19 ↑ | New entry | TR Property (LSE:TRY) | Property Securities | -35.6 | -8.1 | 139.7 | 4.75 |
| 20 ↑ | New entry | CQS New City High Yield (LSE:NCYF) | Debt - Loans & Bonds | 3.2 | 27.7 | 68.2 | 8.47 |
Source: aic.co.uk and Morningstar to 31 December 2022. Past performance is not a guide to future performance.
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