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Income Trusts Top the Most Popular List

Among the 10 most popular investment trusts on Morningstar.co.uk over the past month, four have increased their dividends consecutively for at least 30 years

Karen Kwok 21 April, 2017 | 10:02AM

Closed-end fund investors are homing in on income paying trusts. Many investment trusts which have consistently grown their dividends over several decades have an extra incentive today – they are trading at a discount to net asset value.

Among the 10 most popular investment trusts on Morningstar.co.uk over the past month, four have increased their dividends consecutively for at least 30 years, and two of them are trading at a discount.

Dividend Trusts Trading at Discount

Silver Rated Bankers Trust (BNKR) has increased its dividend pay-out for 50 years, while Silver Rated Witan (WTAN), has 42 consecutive annual dividend increases. Both are trading at discount to net asset value. Bankers is trading at 7.5% discount while Witan is trading at 4.2% discount. Witan came sixth and Bankers came tenth on the most popular trusts list in March.

Morningstar fund analyst David Holder says Bankers’ commitment to maintain and grow the dividend is a strong one. Fund manager Alex Crooke uses the expertise of fellow managers at Henderson, giving each manager a specific income target for their portion of assets, which he oversees to ensure that the portfolio produces enough in the way of dividend income. The fund has also posted gains every year since 2012.

“The board has guided that dividends for fiscal-year 2017 will increase by at least 6%, equating to a minimum annual dividend of at least 18p,” Holder added.

Co-managed by Andrew Bell and James Hart, Witan has a high UK equity weighting as more than 80% of shareholders are British and as such it remains a key reference point, said Holder. The fund has 37% invested in the UK, which is three times the Morningstar peer group average.

Top Gold Rated Trusts

Topping most popular trusts list for the past nine months, is Gold Rated Scottish Mortgage Investment Trust (SMT). Scottish Mortgage has consecutively increased dividends for the past 33 years, according to data provided by Association of Investment Companies. The trust is trading at a 3.2% premium.

Gold Rated City of London (CTY) has grown its dividend every year for 50 years, and it came fifth on the popular list among Morningstar.co.uk readers in March. It is trading at 0.5% premium. The primary driver for a stock to enter the fund’s portfolio is dividend yield, and this focus on income as a measure of a company’s value has been paramount in the fund’s success, said Holder.

3 Top Rated Trusts Trading at Discount

Other popular funds on Morningstar.co.uk also have maintained or increased their dividend most years in the last few decades, and reduced it in just a handful.

Gold Rated Murray International trust (MYI), which came second on the most popular investment trusts list, is one of the examples. This fund was the second most viewed investment trust in March.

“Subsequent to the very strong overseas earnings delivered in 2016 the revenue reserve can now cover the current dividend for a little over a year,” Holder said. The fund is trading at 2.1% discount.

Gold Rated Finsbury Growth & Income trust (FGT) has broadly managed to achieve a long-term progressive dividend policy, according to Holder. However, there have been a handful of years where the dividend has been maintained or cut in response to market conditions, such as 2010, Holder added. The trust is trading at 0.04% discount. The trust was third on the most popular list in March.

Part of the fund’s stated objective is to grow the dividend by more than the rate of UK inflation, therefore the Silver Rated Edinburgh Investment trust (EDIN) has their dividend increased every year since 1973, with just a couple of exceptions. In 2004 and 2005, the dividend payment was maintained rather than increased, said Morningstar senior fund analyst Peter Brunt.

“This was due to the dividend not being covered and some large dividends of underlying stocks being paid to the fund earlier than usual and thus falling into a different financial year. The dividend has grown annually under fund manager Mark Barnett's tenure so far. He has a long track record of growing the dividend on his other UK equity-income mandates, including the Perpetual Income & Growth, thus we have confidence in this objective being fulfilled,” said Brunt. The trust is trading at 3.4% discount.

China, Commodities and Infrastructure

Fidelity China Special (FCSS) saw its first entry into the top 10 investment trusts list in March. It came eighth in the list. This trust holds a Neutral Rating from Morningstar analysts. Fund manager Dale Nicholls’ tenure in the trust, whilst short, is promising for investors, said Holder. Nicholls began managing the trust in April 2014.

However investors should be aware that income is not a prominent feature of this fund as it is aiming to produce predominantly long-term capital growth, said Holder.

Other investment trusts on March’s top 10 list are BlackRock World Mining (BRWM) and RIT Capital Partners trust (RCP).

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
Rating
Bankers Ord813.00 GBX-0.25
BlackRock World Mining Trust plc355.25 GBP-0.28
City of London Ord430.20 GBX-0.62
Edinburgh Investment Ord743.50 GBX-1.39
Fidelity China Special Ord216.30 GBX0.14
Finsbury Growth & Income Ord738.05 GBP0.83
RIT Capital Partners Ord1,924.00 GBX-0.52
Scottish Mortgage Ord405.60 GBX-0.59
Witan Ord1,023.00 GBX-0.78
About Author Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk