Bill Jamieson: Shining a light on income investment trusts
The similarities of title hide big differences in management style, investment approach – and performance.
All told, there are 24 trusts in the UK equity income space. Dividend yields can range from 1.8 per cent to 9.3 per cent. And over the past 12 months the price performance has ranged from a decline of 3.1 per cent (Miton Investment Trust) to a gain of 37.7 per cent (Chelverton Small Companies Dividend Trust).
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For many investors, choice across this field can be a battle between high yield appeal and capital growth performance: with the right stock selection, a trust with an above-average yield can also provide big price gains over time.
For those seeking a proven combination of the two, Standard Life’s £262 million Equity Income Trust (SLEIT) offers an attractive middle way.
Fund manager Thomas Moore gave a presentation to selected analysts and commentators in Edinburgh last week, setting out the trust’s investment approach and what makes it different from other equity income runners and riders.
Two features stood out. The first is the trust’s relatively low exposure to the FTSE 100 giants that dominate UK dividend payouts – the top ten biggest dividend payers accounted for more than half of all dividends by value last year. More than 60 per cent of SLEIT’s portfolio is in FTSE 250 and smaller company shares.
The second is the trust’s impressive long-term performance: in the five years to end August shares in the trust has almost doubled in value, compared with a 75.7 per cent gain by the equity income sector as a whole.
It has not all, of course, been plain sailing for SLEIT. The trust underperformed in mid-2016 as it was caught out by the “flight to mega caps” in the wake of the EU referendum Brexit vote.
But over the past six months the shares have risen by 13.5 per cent against a 7 per cent gain across the equity income sector. And over the 12 months to end August the trust has risen by 18.5 per cent against a sector gain of 15.9 per cent.
Moore has also taken the opportunity to build reserves which should help sustain future dividends against market setbacks.
And setbacks there have certainly been among many of the most widely held FTSE 100 big dividend payers. It is not just a one-off Provident Financial that has cut its dividend. Payout cutters since 2014 have included such top names as Tesco, Sainsbury’s, Centrica, Severn Trent, Glencore, Anglo American, BHP Billiton, Rio Tinto, Standard Chartered and Barclays.
Faced with this fusillade of dividend torpedoes, little wonder that Moore makes a feature of his index-agnostic investment approach.
At 458.75p, SLEIT is on a small discount to net assets and yields 3.62 per cent. Its investment approach, the blend of income and capital gain, and its recent marked bounce-back performance fully deserves a place on any short list of recommended equity income trusts.
Appealing to the disenchanted
For a growing number, it’s not enough that they should feel good about their investments, but that their investments should do good: hence the growth of ethical and “sustainable” funds in recent years.
This week sees the launch of The People’s Trust, aimed at offering a handsome return for investors through a long-term, high conviction and low turnover trust portfolio.
The trust – its stated purpose is “better returns for you and a better impact on society” – is the brainchild of former Investment Association director Daniel Godfrey. He has crowd-sourced more than £100,000 from 2,500 “founder investors” to cover set-up costs.
Godfrey believes “growth will create a trust with low costs, high transparency and accessibility to people currently outside the long-term savings market”.
That’s a noble aim – and one the industry badly needs: attracting younger investors is more of a struggle today with low growth in pay and household incomes and a notable distrust and disdain among many for “fat cat” corporate bosses, the runaway gravy train that is “boardroom remuneration” and the marked emphasis on short-term performance and index-measuring that characterises much of fund management.
The People’s Trust should appeal to many disenchanted with what the stock market has to offer, and who are looking for a more socially responsible alternative.