UK investment trusts with market-beating yields propose merger

Aberdeen Equity Income Trust (LSE:AEI) is to absorb stablemate Shires Income Ord (LSE:SHRS) under proposals recommended by the trust boards.

In the first trust merger announcement of 2026, the Aberdeen Equity Income board said the combination, which is subject to shareholder approval, would “bring together two investment trusts with broadly similar investment objectives, good performance records and share price ratings, using the same portfolio management team”.

“It will create a larger, more liquid, and more cost-effective company, which should deliver greater value for all shareholders,” the board added.

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Both trusts have had a good bout of recent performance, with Shires Income shares returning almost 40% in 2025. Each offers a market-beating share price dividend yield of more than 5%, while AEI shares trade on a small premium and SHRS shares on a modest discount. In contrast, the FTSE 100 yields 3%.

Source: FE Analytics. Past performance is not a guide to future performance.

Scale has been a big factor in the proposed tie-up, with AEI on a market capitalisation of around £219 million and SHRS on roughly £142 million. Trusts increasingly need to bulk up so that institutional investors can buy into them without worrying about liquidity issues and multiple names in the Association of Investment Companies (AIC) UK Equity Income sector command a market cap of more than £1 billion.

Shires Income shareholders would be offered a cash exit of up to 25%, meaning the combined entity would have a market cap of between £289 million and £320 million depending on take-up.

The fund would remain wedded to a progressive dividend policy and retain AEI’s current management fee of 0.55% of net asset value (NAV) a year, together with an additional fixed fee of £120,000 linked to CPI inflation. AEI has a 25-year track record of consecutive dividend increases.

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The enlarged company will retain SHRS’ distinctive portfolio features, including some exposure to investment-grade fixed income securities and preference shares, as well as some exposure to overseas equities in developed markets.

“The manager’s fees will be scaled back, if required, so that the fee does not exceed 0.78%, compared to AEI’s current fee of 0.84% and SHRS’ of 1%,” the board said.

The merger would continue the rationalisation of Aberdeen-managed trusts over recent years. The combined entity’s one remaining UK income stablemate would be Dunedin Income Growth Ord (LSE:DIG).

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Over the past couple of years, investment trust mergers have increased, with five taking place last year, outlined in the table below.

A key driver has been consolidation within the wealth management industry, with such firms being big investors in investment trusts.

As a result, fewer wealth management clients now control greater sums of money and, due to this, will invest only in investment trusts of a certain size for liquidity reasons (the ability to buy and sell easily).

For small investment trusts, those with assets below £300 million, it’s more difficult for larger investors to commit a large sum.

Source: AIC.