Interactive Investor

Investment trust sectors with highest yields revealed

27th October 2017 09:46

Tom Bailey from interactive investor

Investment trusts specialising in leasing on average provide the highest yields for investors, according to new research by the Association of Investment Companies (AIC).

The trade body has carried out research to show the 13 investment trust sectors that provide an average yield of over 3%.

Trusts in the leasing sector topped the table, providing an average yearly divided yield of 6.9%. Closely followed were debt specialists, providing an average yield of 6.5%.

Other investment sectors also included those focusing on equity and bond income, global equity income, UK equity income and provide equity, all yielding an average of over 3%.

However, warns Annabel Brodie Smith, communications director of the AIC, "Investors should not buy on the basis of the headline yield alone. There's a broad spectrum of risk and reward, so it's crucial that investors do their homework."

Investors should look at the gearing (borrowing) of each trust, as high gearing, while leading to greater returns, can amplify losses should the trust in question run in trouble.

 
AIC sector Discount / Premium (%) Dividend yield (%)
Sector Specialist: Leasing 21.1 6.9
Sector Specialist: Debt -0.3 6.5
Sector Specialist: Infrastructure - Renewable Energy 9.8 5.7
UK Equity & Bond Income -8.4 5.2
Sector Specialist: Infrastructure 11.5 4.8
Property Specialist 7.8 4.8
Property Direct - UK 5.4 4.6
Private Equity (excl. 3i) -15.1 4.2*
Hedge Funds -12.5 4.2
Property Direct - Europe -5.5 3.9
Sector Specialist: Commodities & Natural Resources -14.6 3.7
Global Equity Income 2.3 3.7
UK Equity Income -4.4 3.6

Source: AIC using Morningstar,* Weighted average includes 9% distribution fromElectra Private Equity.

Private Equity sector (excl. 3i) average dividend yieldat 17 October 2017 is 3.1%.

Also, while some of the dividend yields are particularly high, investors should take note of whether a trust is trading on a discount or premium.

While trusts specialising in leasing have a whopping 6.9% yield, for example, on average they are trading on a premium of 21.1%. That means that shares in such trusts on average are trading for much more than their net asset value, leaving investors highly susceptible to a decline in price.

Similarly all the trusts in the specialist infrastructure sector are on substantial premiums, with an average of 11.5%.

Among infrastructure specialists, GCP Infrastructure Investments offers a generous yield of 6% (higher than the sector average of 4.8% highlighted by the AIC's research). However, its premium is comparatively high at 14.15%, compared to industry average of 11.5%.

When it comes to debt specialists, Money Observer Rated Fund TwentyFour Select Monthly Income IT is trading on a not-too-high premium of 3.35% as well as providing an above industry average yield of 6.6%.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

This article was originally published in our sister magazine Money Observer, which ceased publication in August 2020.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.