OpinionMay 1 2013

A question of trusts

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Are you a fan of investment trusts, especially in this new post retail distribution review world where commission is persona non grata? Well you certainly should be, or at the very least you should be getting to grips with them as part of your continuing professional development.

I was drawn to two pieces of intriguing research in recent weeks which demonstrated why investment trusts are now more than a match for unit trusts or open-ended investment companies in the land of milk and honey that is post-RDR.

The first was from Capita Registrars – not my biggest friends in light of their culpability in the well-documented Arch Cru affair but let us push that to one side for another day. Capita produces a splendid quarterly review of the dividends paid by UK-listed companies. It is a report that has taken on a greater significance in light of the eager, and somewhat frantic, hunt for income among both financial advisers and private investors as quantitative easing and the Funding for Lending scheme help suppress savings rates.

The latest report, covering the first three months of the year, did not make for happy reading. It revealed that quarter one dividends totalled £14.1bn, a fall of nearly 25 per cent on the equivalent period last year. Worryingly, for income seekers, it predicted that dividend growth would be “hard to achieve” this year. It warned: “After the rapid dividend growth of recent years, it is inevitable that payouts will slow to come more into line with the growth in underlying profitability. Companies are cash generative, and still reluctant to invest aggressively, but dividends must eventually fall into line with profit growth.”

The second was from analyst Oriel Securities. It identified 14 investment trusts – all equity invested – which have a historic yield of at least 4 per cent. These it said could appeal to investors “hungry for yield” who were happy to take on board some equity risk.

The list was eclectic, comprising some surprises such as BlackRock Mining (mining and dividends do not normally go hand in hand), some unknowns such as Middlefield Canadian Income (investing in Canadian equities) and some long-standing investment trusts such as City of London (founded in 1891), Merchants (1889) and Scottish American (1873).