Equity income trust discounts at widest in five years

Added 2nd November 2016

Many investment trusts in the UK Equity Income sector have reached their widest discounts in more than five years, according to brokerage and investment banking firm Stifel as a significant derating is taking place.

Equity income trust discounts at widest in five years

Based on basic supply and demand dynamics, several reasons have been proposed for the sell-off in the sector: the FTSE 100 reaching all-time highs recently, leading to investors taking profits; many trusts in the sector being underweight oils and miners – helping relative performance in 2014/15, but may have held back returns as these sectors pick up this year; and rising yield concerns around the impact of rising interest rates on income generating stocks.

Further, even if interest rates do hit dividend yields, Stifel believes many trusts in the space are trading on a 4% dividend yield, which is attractive compared with bank deposit rates.

Authors of the sector report Iain Scouller and Maarten Freeriks, said: “Many of these trusts also have significant revenue reserves, which can be used to maintain and smooth dividends from the trusts at times of dividend cuts in the equity market. We also view this as an advantage over open-ended income funds.”

While the sector may have fallen out of favour against an uncertain political backdrop, Stifel believes certain trusts offer good value with widening discounts yet still offering dividend yields of 3%-5%.

Schroder Income Growth, JPM Claverhouse and Invesco Income Growth are all currently trading on an 11% discount, compared with respective one-year discount ranges of 3%-12%, 11%-0% and 12-3%. The three trusts are generating dividend yields of 4.2%, 3.7% and 3.8%, respectively.

Sponsors

Portfolio Adviser: Guide to Europe

Portfolio Adviser: Guide to Europe

After a politically turbulent time in 2016, Europe has been under scrutiny with several nations going to the polls.The question asked, would investors be right to...

Kames Income Hub

home_research_centre

Vincent McEntegart, manager of the Kames Diversified Monthly Income Fund, explains how he aims to deliver a stable and sustainable income of 5% p.a.*, paid monthly, by investing in a range of asset classes

Square Mile Research

AXA Distribution Fund
AXA Distribution Fund

Talking Factsheets is a video service for users...

Visitor's Comments Add your comment

Add Your Comment

We won't publish your address

Profiles

Viewpoint

Investment Strategy

Feature

Tweets

Events

PA Income 2017
PA Income 2017

Tuesday 4 July
Radisson Blu Edwardian Bloomsbury Street Hotel 

PA Edinburgh 2017
PA Edinburgh 2017

Thursday 7 September
Balmoral Hotel

PA Alternatives 2017
PA Alternatives 2017

Tuesday 12 September
Radisson Blu Edwardian Bloomsbury Street Hotel

PA Dublin October 2017
PA Dublin October 2017

Tuesday 10 October
Westbury Hotel, Dublin

Sponsored Content

OTHER STORIES FROM LAST WORD...