UK equity income investment trusts may have enjoyed a strong run since the market bottomed-out in 2009 but these days value is getting far more difficult to find.
On the back of the sector’s rebound since the market’s nadir, investors have piled in and as a result the sector is presently trading at an average premium of 0.5 per cent.
Lowland is the category’s top performer over the past five years to the end of February. With a 356 per cent return it has far outpaced even its nearest competitor but presently the trust comes with a heavy 8.4 per cent premium.
The portfolio has benefited from continuity of management, with James Henderson behind the fund since 1990. Mick Gilligan, head of research at Killik & Co, notes: “The trust’s bias towards industrial stocks has certainly helped performance over the period, as these companies were pretty beaten-up at the time.”
Another strong performer across the period has been the Nick Train run, Finsbury Growth & Income portfolio, which is up 265 per cent over five years and is presently resting close to the sector mean at a 0.6 per cent premium. Mr Gilligan says: “The fund has investments in some big brand names which have performed well, including Nestlé and Unilever.”
Adrian Lowcock, senior investment manager at Hargreaves Lansdown, adds: “The manager typically takes a long-term view to investing; preferring to buy and hold businesses. The focus is on companies which have a high return on equity and trade below their true value. He runs a highly concentrated portfolio which means performance is likely to differ from the benchmark.”
Other standouts include Shires Income, up 252 per cent and the Value and Income Trust, up 251 per cent in the past five years. The two funds show, however, that there is some value to be had in the sector, given that the former vehicle is trading at a 1.3 per cent discount while the Value and Income Trust is at a far deeper discount of 10.5 per cent. Notably, Value and Income is posting its 26th dividend increase in a row. Meanwhile its peer Temple Bar, up 193 per cent over five years, has now notched up 30 years of consecutive dividend increases but the Alastair Mundy run trust is now at a 1.5 per cent premium.
At the other end of the spectrum, the lower returns over the period have been delivered by BlackRock Income & Growth and JPMorgan Elect Managed Income, with each having risen 126 per cent over five years while F&C Capital & Income Trust is up 118 per cent. In regards to the latter, the focus here, according to Mr Lowcock, tends to be more on the large-cap space although the fund will invest in mid-sized stock. He adds: “The manager had a good run in 2008/09 but performance has lagged the wider market. The fund is currently heavily invested in financials.”
Philip Scott is a freelance journalist
