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One in three investment trusts trumps FTSE 100 yield

Don't let high yields cloud your fund selection, as the bigger picture could be more important.
November 23, 2012

More than a third (38 per cent) of investment trusts yield more than the FTSE 100 index, according to the Association of Investment Companies (AIC).

The AIC research also shows the top 10 yielding investment companies produced dividends which, on average, exceeded that of the FTSE 100 average (3.76 per cent) by more than three times.

But, while higher-yielding products are experiencing greater than average demand in the wake of the financial crisis, investors are being warned that too much focus on yields could be detrimental to their portfolios.

Annabel Brodie-Smith, communications director at the AIC, says: "There is a huge diversity across the sector and investors should not invest on yield or, indeed, pricing alone. It's important to look at the whole picture, and income-seekers may also want to look at charges, discount/premium, dividend cover, gearing, as well as the underlying portfolio."

Duncan Owen, head of property at Schroders, said there has been a significantly increased demand for alternative investments such as property over the past 12 months, as they provide a higher income than traditional equities or bonds. He added: "Our share price has jumped 25 per cent this year as more investors are looking for income, but dividends only show part of the full picture of funds' overall value for money."

Investors must also focus on the sustainability of future dividend streams, according to Alan Brierley, director of investment companies at Canaccord Genuity.

"In recent years, there has been an indiscriminate re-rating of yield-orientated investment trusts. Moving forward, we expect to see greater scrutiny of how these yields are actually achieved - to what extent are they manufactured, and what is the 'cost' to total returns," he said.

Top five yielding AIC investment companies

FundLatest net gearing (cum fair)TER12-month yield12-month premium/discount1-year return3-year return5-year return
British & American Investment Trust PLC1592.6610.777.947.892.55-9.43
Juridica Investments Ltd882.886.10-10.31-2.3313.34
IRP Property Investments1762.408.83-25.20-0.0132.22-18.75
ISIS Property Trust1571.407.87-16.342.4740.65-10.93
Greenwich Loan Income Fund21914.796.90-6.8026.29246.923.35
Source: Morningstar on 20 Nov 2012