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Diverse Income underperformance attributed to lack of AIM growth stocks

Diverse Income underperformance attributed to lack of AIM growth stocks – Diverse Income Trust has published results for the year ended 31 May 2017. The net asset value rose by 13.6% from 91.02p to 103.43p over the year. This compares with an increase in the All-Share Index of 20.0% over the year to 31 May 2017. The degree of underperformance is more marked relative to the AIM All-Share Index, which rose by 34.2%. The three interim dividends and the proposed final dividend for the year amount to 3.00p, compared with 2.80p in the previous year, an increase of 7.1%. They have also recommended a special dividend of 0.40p per share.

The managers’ report gives very little detail on the factors that led to the fund underperforming. Here is an extract: “Sterling fell back after the Brexit vote in June and the devaluation of the pound boosted the share prices of many multinational companies. This was particularly true of several 100 Index stocks which also benefited from the recovery of commodities, and those that pay their dividends in overseas currencies. The 100 Index delivered a capital return of 20.7% over the year to 31 May 2017. 

The share prices of many smaller companies were more mixed, with some added caution over the prospects of domestic stocks offset by large rises in some of the largest AIM growth stocks. The net effect was that the AIM All-Share Index rose 34.2% over the year to 31 May 2017, whilst the SmallCap (excluding Investment Companies) Index returned 20.4%.

Since an income portfolio does not hold growth stocks in the main, the Company has not benefited from the major rises amongst some of the larger AIM stocks. Nevertheless, there were some strong performers in the fund, with IG Design up 104.1% and Burford Capital appreciating by 178.3% over the twelve months to May 2017. A major rise in the dividends from Stobart Group also drove their share price as well, with it appreciating 116.8% over the period. In contrast, the
share price of Fairpoint disappointed after extra working capital was required for their legal business, and the debt management business returns were impacted by a change in regulation. Finally, the largest detractor to performance in the year was the Put option, where the major rise in the 100 Index led its market value to fall rather more rapidly than the normal monthly decay cost.”

DIVI : Diverse Income underperformance attributed to lack of AIM growth stocks

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