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High Yielding Equity Trusts – The View from Oriel

At a time when all eyes seem to be on income investments, we’re particularly indebted to Iain Scouller of Oriel Securities for this morning’s very illuminating  insight into the highest-yielding equity trusts.


 

According to Oriel, there are currently 20 trusts investing in equities which have a yield of 4.0% and higher, and with market caps in excess of £70m – a significant improvement on the 16 trusts which Oriel listed in May. For investors prepared to take equity risk, Scouller says, these may be attractive for income investors at a time of exceptionally low interest rates. In addition, the property, infrastructure, renewable energy and debt fund sectors also continue to offer attractive yields.


 

New entrants to the 4.0% plus list since May, he says, have included Murray Income, City of London and JPMorgan Russian. But it’s not always necessarily that strong dividend growth has resulted in higher dividend yields; for some of the joiners, he says, it reflects a fall in share prices.

In the table below, Oriel lists funds primarily invested in listed equities, with a historic yield of at least 4.0% – which, Scouller says, is at a significant premium to the FTSE All Share yield of 3.4%.

High-flyers among the UK trusts include Merchants, which has a yield of 5.1%, and with the shares on a 2% premium (NAV ex-income).Looking overseas, higher yielders include the European Assets trust, with a 6.6% yield; however, this is a fund where the Board resets the rate of dividend annually and finances it partly by paying out capital. Henderson Far East Income has a yield of 5.6%, it says, with investments in Asian and Australian equities and preference shares.

JPMorgan Russian’s yield of4.0% might seem attractive at present, but Oriel warns that this level of dividend may not be maintained going forward, since the fund’s focus is on capital growth. And British Assets’ 4.9% yield needs to be viewed against yesterday’s announcement of a change in policy away from equities – with 60% of the portfolio henceforth being invested in a multi-asset portfolio. (The Board says it intends to maintain the dividend, however.)

  • Funds primarily investing in equities with a dividend yield above 4.0%

Fund Market Cap (£m) Yield (%) Discount (%)
European Assets Trust 183 6.6 4 disc.
BlackRock Commodities Income 103 6.1 4 prem.
BlackRock World Mining 633 5.9 6 disc.
Henderson Far East Income 351 5.6 3 prem.
Merchants Trust 496 5.1 3 prem.
Shires Income 71 5.1 2 prem.
Henderson High Income 183 5.0 4 prem.
British Assets 373 4.9 4 disc.
Middlefield Canadian Inc 114 4.8 2 disc.
Scottish American 320 4.3 3 prem.
Dunedin Income Growth 394 4.3 2 prem.
BlackRock Latin America 169 4.2 8 disc.
Murray Income 514 4.1 2 prem.
 Murray International* 1,359 4.1 11 prem.
BlackRock Latin America 176 4.0 8 disc.
City of London IT 1,086 4.0 3 prem.
JPM Russian 200 4.0 10 disc.
JPM Global Emerging Inc 349 4.0 5 prem.
Schroder Income Growth* 176 4.0 2 disc.
F&C Capital & Income 230 4.0 3 prem.
 FTSE 100 NA 3.6 NA
FTSE 250 NA 2.7 NA
Includes: funds primarily investing in listed equities.Excludes: funds with market capitalisations of less than £70m. Excludes funds with multiple share classes.

Discount/premiums based on estimated Fair value NAVs (ex-revenue) at close on 29/10/14.

NAV performance figures are based on diluted NAV at FV and are capital return only.

Source: Datastream

 

 

Iain Scouller

Partner

Oriel Securities Limited

Direct Line: +44 (0)20 7710 7647 │ Mobile: +44 (0)7507 469910 │ Fax: +44 (0)20 7710 7609

Email: iain.scouller@orielsecurities.com

Address: 150 Cheapside, London EC2V 6ET

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