FE Trustnet reveals how investors can use a basket of trusts to provide a monthly earnings stream. |
Investment trusts are increasingly paying dividends on a quarterly basis, according to AIC data, meaning that it is becoming easier to construct a portfolio that pays a monthly income.
Last week Witan Investment Trust announced it was switching from a biannual to a quarterly payment, joining big names such as Foreign & Colonial, Lowland, Standard Life Equity Income and Henderson Global.
In total, one-quarter of AIC-member investment trusts now pay dividends on a quarterly basis, with most of these sitting in income sectors. The £1bn F&C Commercial Property IT even pays a monthly income.
Annabel Brodie-Smith, communications director of the AIC, says that the trend is evidence of trusts trying to make themselves more appealing to retail investors in light of the Retail Distribution Review (RDR) reforms.
"Dividend dates are important for many income-hungry investors and this is particularly the case in the current low interest-rate environment," she said.
"So it’s interesting to see a growing number of companies moving to quarterly dividend payments, suggesting that many investors favour a 'little and often' approach to income investing."
Here, FE Trustnet looks at the options available for an investor who wants to construct a portfolio that pays a monthly yield.
January, April, July, October
Those trusts of Aberdeen with a quarterly yield pay out in January, giving investors a good place to start.
Shires Income and Murray Income are two high-yielding options, both sitting in the UK Growth & Income sector.
Shires Income, managed by Ed Beal, is currently yielding 5.4 per cent, one of the highest figures in a sector with an average payout of 3.9 per cent.
Murray Income, managed by Charles Luke, has a yield of 4.8 per cent, but has slightly underperformed Shires Income on a total return basis in recent years.
Aberdeen Asian Income and Aberdeen Latin American Income are two international options, although the yield on both portfolios is lower than the UK trusts, at 3.5 per cent and 3.8 per cent respectively.
Henderson High Income and City Merchants High Yield are two high-income options with these payout dates; the portfolios yield 5.7 per cent and 5.6 per cent respectively.
For those who really want to boost their income, Invesco Leveraged High Yield, paying 7.7 per cent, is an option.
This £101.6m trust is managed by Paul Causer and Paul Read and is sitting on a discount of 10.9 per cent. Despite investing in high-risk bonds, the portfolio has beaten the FTSE All Share over three and five years on a total return basis, making 53.07 per cent over the past three years.
For diversification, there are options in debt, property and commodities. Real Estate Credit Investments is yielding 6.1 per cent, Duet Real Estate Finance 6.3 per cent and BlackRock Commodities Income 4.7 per cent.
February, May, August, November
FE Alpha Manager Neil Woodford’s £1.2bn Edinburgh Investment Trust is among the portfolios to pay out in February.
It has significantly outperformed his multi-billion pound Invesco Perpetual Income and Invesco Perpetual High Income portfolios on a total return basis and also has a higher yield, according to AIC figures.
Edinburgh Investment Trust is currently yielding 4.2 per cent compared with the 3.5 per cent of the two income funds.
Merchants is a higher-yielding UK option – the payout is 5.7 per cent – while there are a number of Global funds with decent yields paying out in these months.
Henderson Far East is currently yielding 4.6 per cent, while the London & St Lawrence trust is yielding 3.9 per cent from a global portfolio.
Bruce Stout’s Murray International also pays out in these months, although its yield of 3.7 per cent is slightly lower than London & St Lawrence's. However, Stout has built up a strong reputation after returning 88.57 per cent to investors over the past five years and 56.55 per cent over the past three.
There is a pair of high-yielding property funds that pay out in these months too: Standard Life Investments Property Income – 7.6 per cent – and UK Commercial Property – 7.7 per cent.
March, June, September, December
Ciaran Mallon’s Invesco Income Growth trust pays its income in March and it is currently yielding 3.8 per cent.
The trust was highlighted by Winterflood’s Simon Elliott this month as a potential bargain. Its discount has actually slightly widened since then, reaching 3 per cent. The trust has almost doubled the returns of the FTSE All Share over the past three years, making 64.41 per cent while the index has climbed 34.91 per cent.
The highest-yielding fund to pay out in these months is F&C’s IRP Property Investments, which currently pays out a massive 12.1 per cent.
However, the fund has lost money over the past three years on a total return basis while every other trust in the AIC Property sector has made money.
Greenwich Loan Income also pays out in these months and yields a healthy 9.3 per cent.
The fund invests in collateralised loans and is held by Paul Craig, manager of the Henderson UK Strategic Income fund of investment trusts.
More mainstream portfolios to pay an income in these months are Midas Income & Growth – 4.3 per cent – and Standard Life Equity Income – 3.9 per cent.
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