UK Gilt yields may continue to plunge, but there are a good number of investment trusts with a yield in excess of 4 per cent - a premium to the yield of 3.7 per cent on the FTSE All-Share index, according to Oriel Securities. And these are not just trusts that invest in weird and wonderful assets on which you might not want to take a punt, but mainstream equity funds. However, this has not gone unnoticed by investors, resulting in some of these trusts trading close to or at premiums to net asset value (NAV).
Many of these focus on UK equities. For example City of London, which primarily invests in UK blue-chip companies and has a yield of 4.8 per cent; Schroder Income Growth, which has a 5.66 per cent yield and is trading on a 5.98 per cent discount; and Edinburgh Investment Trust, which yields 4.66 per cent and is managed by Neil Woodford. This trust's performance has been helped by its defensive bias over the past few months.
However some of these trusts appear expensive. Merchants, for example, is on a 0.6 per cent premium and over one year its NAV is down by 2.42 per cent. Oriel says there is a risk these funds could derate.
Funds investing overseas with high yields include European Assets, which offers 6.81 per cent. The board of this trust resets the rate of the dividend annually which can be partly financed by effectively paying out capital. This method of generating yield may become more widespread following recent rule changes which allow UK domiciled trusts to do this. Read more on this
IC Top 100 Fund Henderson Far East Income, meanwhile, yields 5.36 per cent.
| Trust | Yield (%) | Discount/premium to NAV (%) | 1 year NAV total return (%) | Total expense ratio (%) |
|---|---|---|---|---|
| Merchants | 7.2 | 0.6 | -2.42 | 0.61 |
| European Assets | 6.81 | -10.28 | -18.63 | 1.67 |
| Shires Income | 6.59 | -1.34 | 0.72 | 1.13 |
| Henderson High Income | 6.57 | 1.6 | 2.46 | 1.96 |
| Schroder Income Growth | 5.66 | -5.98 | -0.48 | 0.97 |
| British Assets | 5.42 | -3.94 | -3.59 | 0.66 |
| Henderson Far East Income | 5.36 | 1.35 | 1.54 | 1.67 |
| BlackRock Commodities Income | 5.2 | -2 | -15.87 | 1.6 |
Source: Morningstar as at 19 June 2012
