Aberdeen Asian Income investment trust
Share price: 150p
Market Cap: £171m
Premium to NAV: 2.7%
Dividend yield: 3.7%
The Aberdeen Asian Income investment trust is managed by Aberdeen's star emerging market fund manager, Hugh Young. The trust's income focus can in some ways be regarded as a happy accident. That's because Mr Young's approach isn't first and foremost to go out and look for shares with high yields. Instead, he looks for companies with strong fundamentals that he believes are undervalued. It so happens, the kind of strength he looks for based on fundamentals means he normally ends up buying the shares of companies with large and growing yields.
While Asian funds can often feel like China funds with a sprinkling of something else, Mr Young's funds do tend to be far more representative of the region as a whole. In fact, he is very happy to stray from the weighting given to different regions by the index and, at the end of May, China only accounted for 2.8 per cent of his fund's portfolio, compared with 20 per cent of the regional index. His trust had most exposure to Singapore, which accounted for 23 per cent of assets.
Share price: 849p
Market Cap: £870m
Premium to NAV: 9.2%
Dividend yield: 3.4%
The manager of Murray International, Aberdeen Asset Management's Bruce Stout, cottoned on to the poor outlook for UK dividends a number of years before the credit crunch hit. While most global equity income funds continued to doggedly rely on the UK for much of their income, Mr Stout started looking elsewhere, especially to emerging markets. Frequently he gets his emerging market exposure through stocks listed on Western exchanges that tap into the wider theme. While you can find higher yields from other trusts, Murray International's dividend growth is rather spectacular. The dividend grew by 16.4 per cent last year and the first of four payments in the current financial year was up 21.4 per cent.
Mr Stout has a long-term value approach to investing and isn't swayed by benchmarks. But while Mr Stout is a stock-picker, he avoids taking large single-stock positions in his portfolio and currently has no holding that represents any more than 4 per cent of the total. The trust does invest in bonds but it chiefly focuses on securing its income from equities.
The trust's shares do tend to trade at a premium to NAV and investors may need to watch out that they don't overpay – the premium listed above looks a bit toppy, for example. The trust is active in trying to manage the discount by issuing new shares, which has the potential to add value over time given the premium rating.
Polar Global Healthcare Growth
Share price: 101p
Market Cap: £90m
Premium to NAV: 8.2%
Dividend yield: see text
When investors buy UK equity income funds a lot of what they end up with is pharmaceutical stocks. However, UK pharma offers very poor pickings for investors and an international approach is really the only sensible way to play this sector, especially for anyone wanting biotech exposure. However, despite the great yields many big pharma stocks offer, it is only recently that an investment trust has been set up to exploit this opportunity. The Polar Healthcare Opportunities investment trust aims to have a progressive dividend policy and pay quarterly dividends generating a 3 per cent yield within the first 15 months of its fixed 7.5-year life.
The timing of the fund's launch earlier this year was particularly interesting because, unlike most investment trusts that launch at the top of the market, Polar has tried to launch this fund at the bottom and even more impressively managed to raise £87m for its cause.
With pharma valuations scraping historic lows the manager is hoping that the conclusion to US healthcare reform and restructuring in the industry can reignite interest in the sector. But even without this recovery, dividend prospects look good. In the early stages of a trust's life the premium can move quite wildly, so would-be buyers would probably be best served by showing patience and waiting for the right buying opportunity.
Utilico Emerging Markets
Share price: 145p
Market Cap: £320m
Discount to NAV: 10.3%
Dividend yield: 3.3%
Aim-listed Utilico invests in utility companies, infrastructure and related sectors in emerging markets. As such, it combines the spice of fast-developing emerging markets growth with the defensive aspects of utilities and infrastructure. This mix has given rise to a handsome dividend and relatively stable NAV, despite the emerging market exposure.
The trust has positioned itself to benefit from growth in China, India and Brazil and believes an economic recovery in the US will also contribute to its prospects. The trust has attempted to capture the increase in economic activity by pursuing themes such as investment in toll roads, which should benefit from increased traffic as economies grow. Over 15 per cent of the portfolio is now invested in toll roads. The trust's biggest sector exposure is to ports, which account for 20 per cent of the portfolio, followed by water and waste, which account for 19 per cent.
Falling revenues and higher taxes meant that some of last year's dividend had to be paid from reserves, but the trust also said earnings had recovered well during the second half. Maintenance of an uncovered payment also highlights the importance given to the dividend.