Investment trusts remain a reliable source of income

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Investment Trusts - May 2014

For those on the hunt for income, the unique structure of investment trusts means they are a reliable source.

According to figures from the Association of Investment Companies (AIC), 24 per cent of its conventional members with 10-year histories have been able to increase dividends for each of the last 10 years.

Britain’s oldest investment company, Foreign & Colonial which launched in 1868, has announced its 43rd consecutive dividend increase, while 105-year-old Witan Investment Trust has 39 years of consecutive dividend increases and the 87-year-old Brunner Investment Trust has produced increased dividends for 43 years in a row.

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Annabel Brodie-Smith, communications director at the AIC, explains: “Through good times and bad, through boom and bust, through wars and the recent credit crunch, investment companies continue to produce unparalleled dividend track records.

“This is due to their unique structure: investment companies have the flexibility to squirrel away some of the income they receive each year and save this for tougher times.”

She adds: “This feature has enabled many investment companies to increase their dividends to meet the needs of income investors through thick and thin.”

City of London Investment Trust and Bankers Investment Trust have set the record, having raised their dividends for 47 years in a row.

James de Sausmarez director and head of investment trusts at Henderson Global Investors, says: “If you think about some of the markets we’ve been through over the last 47 years that’s a pretty impressive record. But it shows what you can do in terms of smoothing and growing dividends over time with the investment trust structure – that’s a big advantage.”

But it is not only the ‘Golden Oldies’ of the investment trust sector which have a strong track record. The Value & Income investment Trust, which has been in existence for a mere 33 years, has announced it will be posting its 26th dividend increase in a row and JPMorgan Claverhouse has raised its dividend for the last 41 years of its 51-year history.

Data from the AIC showing the top 20 most viewed investment companies in the first quarter of 2014 revealed that income focused companies remain popular.

William Meadon, manager of the JPMorgan Claverhouse Investment Trust, points out that in the current low interest rate environment the demand for income is likely to increase.

“I think the hunt for income, certainly the hunt for safe and growing income and predictability of income, is possibly one of, if not the biggest investment theme at the moment,” he says.

“Because we get next to nothing in the bank. Certainly US and UK bonds are pretty safe, but lending the US and UK government money for 10 years and getting 2.5 per cent nominal back with no dividend growth at all, that doesn’t look particularly attractive for income investors. So it leads you back to the equity market.”

Mr de Sausmarez agrees income is in demand and that with more positive macro news coming out of Europe, investors want to put their money back into the market.