Investment trust sectors with highest yields revealed

Investment trusts specialising in leasing on average provide the highest yields for investors, according to new research by the Association of Investment Companies (AIC).

The trade body has carried out research to show the 13 investment trust sectors that provide an average yield of over 3%.

Trusts in the leasing sector topped the table, providing an average yearly divided yield of 6.9%. Closely followed were debt specialists, providing an average yield of 6.5%.

Other investment sectors also included those focusing on equity and bond income, global equity income, UK equity income and provide equity, all yielding an average of over 3%.

However, warns Annabel Brodie Smith, communications director of the AIC, “Investors should not buy on the basis of the headline yield alone. There’s a broad spectrum of risk and reward, so it’s crucial that investors do their homework.”

Investors should look at the gearing (borrowing) of each trust, as high gearing, while leading to greater returns, can amplify losses should the trust in question run in trouble.

 

AIC sector

Discount / Premium (%)

Dividend yield (%)

Sector Specialist:
Leasing

21.1

6.9

Sector Specialist:
Debt

-0.3

6.5

Sector Specialist:
Infrastructure – Renewable Energy

9.8

5.7

UK Equity &
Bond Income

-8.4

5.2

Sector Specialist:
Infrastructure

11.5

4.8

Property Specialist

7.8

4.8

Property Direct –
UK

5.4

4.6

Private Equity
(excl. 3i)

-15.1

4.2*

Hedge Funds

-12.5

4.2

Property Direct –
Europe

-5.5

3.9

Sector Specialist:
Commodities & Natural Resources

-14.6

3.7

Global Equity
Income

2.3

3.7

UK Equity Income

-4.4

3.6

Source: AIC using Morningstar,* Weighted average includes 9% distribution from
Electra Private Equity.

Private Equity sector (excl. 3i) average dividend yield
at 17 October 2017 is 3.1%.

Also, while some of the dividend yields are particularly high, investors should take note of whether a trust is trading on a discount or premium.

While trusts specialising in leasing have a whopping 6.9% yield, for example, on average they are trading on a premium of 21.1%. That means that shares in such trusts on average are trading for much more than their net asset value, leaving investors highly susceptible to a decline in price.

Similarly all the trusts in the specialist infrastructure sector are on substantial premiums, with an average of 11.5%.

Among infrastructure specialists, GCP Infrastructure Investments (GCP) offers a generous yield of 6% (higher than the sector average of 4.8% highlighted by the AIC’s research). However, its premium is comparatively high at 14.15%, compared to industry average of 11.5%.

When it comes to debt specialists, Money Observer Rated Fund TwentyFour Select Monthly Income IT (SMIF) is trading on a not-too-high premium of 3.35% as well as providing an above industry average yield of 6.6%.

This article was originally published in our sister magazine Money Observer. Click here to subscribe.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. 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.

Source.