Seven of our top 10 most-popular investment trusts have dividend yields of 3.8% or more.
A key trend in our most-bought investment trust top 10 table over the past year to 18 months has been a move away from growth towards dividend-paying strategies.
With interest rates rising sharply since December 2021, and inflation remaining high, this makes sense. After all, providing income is paid, dividends give investors a tangible return.
Whereas, growth stocks offer the prospect of ‘jam tomorrow’. And given that the returns on lower-risk assets, such as cash and bonds, have now become more attractive, there’s less incentive to hold growth stocks. This has caused valuations to cool and share prices to re-price.
Investors have been on the hunt for a sizeable starting yield. This is reflected in our table, with seven of the top 10 trusts having dividend yields of 3.8% or more.
JPMorgan Global Growth & Income has a yield of 3.8%. It uses capital if necessary to pay its quarterly dividend, which allows its managers to invest in lower-yield stocks.
Its top two holdings are tech giants Microsoft (NASDAQ:MSFT) and Amazon.com Inc (NASDAQ:AMZN), which have both had a strong start to the year, with respective share price gains of 27% and 23%. Ultimately, this may be because the valuation falls and share price re-pricing for large-cap tech stocks was overdone in 2022 in response to interest rate rises.
- Listen to our podcast: is interest rate pain over for tech shares?
- Watch our video: Fund Finder: value versus growth investing
- Are value funds and investment trusts topping the performance charts?
JPMorgan Global Growth & Income adopts a total return approach, aiming to outperform the MSCI All Country World Index over the long term.
For Henderson Far East Income, a high and growing dividend is the main focus, reflected by its eye-catching yield of 9.5%. Just over half of the portfolio is held in three countries: China, Australia and South Korea. Its top three holdings are Samsung Electronics (LSE:SMSN), Macquarie Group (ASX:MQG) and Taiwan Semiconductor Manufacturing (NYSE:TSM).
While it has a high yield, its one and three-year total returns are the lowest in the table, ignoring Scottish Mortgage (LSE:SMT).
The other five investment trusts offering attractive yields of 6.2%, 5.6%, 4.8% and 4.2% are BlackRock World Mining Trust (LSE:BRWM), Greencoat UK Wind (LSE:UKW), Merchants Trust (LSE:MRCH), and Murray International (LSE:MYI).
BlackRock World Mining, which has the highest return over three years of all the investment trusts in the top 10, has benefited from commodity price rises over that time period, which has increased profits from mining and oil stocks. Some of these higher profits are being returned to investors through share buybacks and higher dividend payments. This has resulted in BlackRock World Mining offering a high yield.
In addition, the need to decarbonise and transition to renewable energies is a long-term trend that’s a tailwind for this trust, which owns mining companies involved in battery metals, such as copper and cobalt, in the case of Rio Tinto (NYSE:RIO) and Glencore (LSE:GLEN).
The next highest yielder, Greencoat UK Wind, has been in our top 10 for more than a year now. It aims to provide investors with a yearly dividend that increases in line with RPI inflation. This has been successfully achieved each year since the trust launched in 2013.
It is followed by Merchants, yielding 4.8%. Managed by Simon Gergel, the trust aims to deliver above-average level of income through investing mainly in higher-yielding large UK companies. Over three years it has comfortably outpaced the average UK equity income trust, returning 83.3% versus 48.3%. Its top three holdings are Shell (LSE:SHEL), British American Tobacco (LSE:BATS) and GSK (LSE:GSK).
- Ian Cowie: four golden oldies that have stood the test of time
- Your vote counts: the investment trust AGMs in May 2023
- How your portfolio will be impacted if higher interest rates endure
Completing the six/seven high-yielding trusts is Murray International, which has a global remit. However, unlike most of its peers, it does not just stick to developed markets. It has around 40% of its assets in shares listed in the Asia-Pacific and emerging market regions. It is managed by Bruce Stout, who, in the current environment, is favouring stocks that own “real assets” and have pricing power.
For many investors, particularly those at retirement, the consistency of a rising dividend is to be treasured. Therefore, it is no surprise to see City of London (LSE:CTY), F&C Investment Trust (LSE:FCIT), and Alliance Trust (LSE:ATST), all remaining popular with investors. Each are among the eight investment trusts with more than half a century of annual pay rises.
Of the trio, City of London is more of an income play, with a yield of 5%, whereas Alliance Trust and F&C have more of a capital growth focus, reflected by their lower yields of 2.5% and 1.5%.
The outlier is Scottish Mortgage, which continues to be the most-popular investment trust among our customers. The trust has a high-growth focus, although it does pay a small dividend.
The types of companies that Scottish Mortgage invests in – growth companies with disruptive technologies, including a third of the portfolio in more speculative unlisted companies – have been firmly out of favour for the past 12 to 18 months. This is due to interest rate rises, which have devalued the expected future earnings of growth companies.
Top 10 most-popular investment trusts in April 2023
|Rank||Trust||Change from March||One-year performance to 1 May 2023 (%)||Three-year performance to 1 May 2023 (%)|
|1||Scottish Mortgage||No change||-30.9||-0.5|
|2||City of London||No change||6.7||47.2|
|3||F&C Investment Trust||No change||8.2||48.1|
|4||Greencoat UK Wind||Up four||3.3||34.5|
|5||JPMorgan Global Growth & Income||New entry||3||69.5|
|6||Alliance Trust||Down two||3.9||46.6|
|7||Merchants Trust||No change||7||83.8|
|8||BlackRock World Mining||Down three||-4.2||150.6|
|9||Murray International||Down three||11.6||60.9|
|10||Henderson Far East Income||New entry||-8.7||4.1|
Source: interactive investor. Performance figures: FE fundinfo. Note: the top 10 is based on the number of “buys” during the month of April.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.