Try this trust for a high yield

However, UK High Income investment trusts also offer high yields, including debt focused New City High Yield, City Merchants High Yield and Henderson Diversified Income. "We continue to like the debt space," say analysts at investment bank Investec. "In a world of greater equity volatility and economic headwinds these fixed income plays offer investors more consistent and predictable returns through coupon payments via lower risk securities in terms of their position in a company's capital structure."

IC Top 100 Fund and IC Fund Award nominee New City High Yield Investment Trust offers a yield of nearly 7 per cent and is one of the best performing trusts in the sector both in terms of share price and net asset value (NAV). However this has not escaped the notice of yield hungry investors so it trades at a premium to NAV of more than 6 per cent.

However, following some recent price weakness, City Merchants High Yield trades at a discount to NAV of 3.32 per cent in contrast to its 12 month average premium of 1.23 per cent. This trust also offers a generous yield of 5.1 per cent and has made good long-term returns.

The trust aims both for high income and capital growth, providing a high level of dividend income relative to prevailing interest rates. It invests mainly in high yield bonds, but also in other fixed interest securities, equity like securities within fixed income markets, equity linked securities such as convertible bonds and high yielding direct equities.

The trust focuses on higher credit quality high yield issuers as well as higher yielding investment grade names, with more than half of its assets in the upper end of the high yield category with a BB or B rating. More than a fifth of its assets are investment grade - BBB or above. Investment grade rated bonds are considered to be the least likely to default.

"We continue to favour higher credit quality high yield issuers as well as higher yielding investment grade names," comment the fund's managers, Invesco Perpetuals's co-heads of fixed income Paul Read and Paul Causer. "Their yields remain at relatively high levels and we believe we can find opportunities, most notably in banks and other financials. Aggregate yields on this type of debt offer real value, even in the context of the higher levels of volatility we have seen. Elsewhere, we believe we can find select opportunities across the high yield market to lock in attractive yields."

City Merchants High Yield has relatively low levels of debt with net gearing of 93 per cent and a very reasonable ongoing charge of 1.08 per cent.

The trust's performance is not good over one year. However, investment trust holders should have a long-term time horizon over which these fund managers have proved themselves both with this trust and a number of open-ended bond funds. Therefore if you have a higher risk appetite and can hang onto your investments for at least five years, City Merchants High Yield Trust could be a good source of income. BUY.

Source: Morningstar.

Performance data as at 16 July 2012.

Top ten holdings as at 31 May 2012

Credit rating breakdown as at 31 May 2012