Diverse Income Trust has published results for the year ended 31 May 2024. The NAV total return for the period was 16.5%, which it compares to 15.6% for a peer group selected by the trust, and 15.6% for the Deutsche Numis All-Share Index. (It also publishes an adjusted NAV which takes account of the performance of assets in the redemption pool – assets carved out to fund redemptions – this figure was 15.4%.) A widening of the discount left shareholders with a return of 12.7%.
Each year the board offers shareholders a voluntary redemption opportunity. This year, 82,147,477 shares were offered for redemption, representing 25.8% of the trust’s equity. The date of the next redemption will be 29 August rather than 31 May. This should mean that it has less impact on the preparation of the annual report.
The dividend was upped from 4.05p to 4.25p. This was covered by revenue per share of 4.35p.
The managers are optimistic that the UK is at a turning point and that the fund is on track to deliver better performance. In particular, they feel that UK stocks are cheap and the smaller companies that they have favoured are even cheaper.
Extracts from the manager’s report
Principal contributors
Over the year under review, there were six portfolio holdings whose share price appreciation and dividend income each added at least 1% to the Trust’s returns. Three of these were in the financial sector, where the persistently high interest rates were only a tangential benefit.
- XPS Pensions advises pension schemes on methods of reducing risk within the context of the requirement to ensure they meet future pension payments in full. XPS has been steadily taking market share over recent years, and its growth rate accelerated this year.
- CMC Markets has been a strong performer for the Trust in the past, but its share price had fallen back considerably as it invested in widening its further offer so that customers could participate in financial markets more efficiently. As CMC’s investment phase concluded, and it started winning new customers, its share price recovered rapidly.
- TP ICAP has also been investing to improve the market liquidity of credit, with an initiative that may make a major difference in future. (Further details below)
- Pan African Resources is a South African gold mining company which has benefited as the gold price has increased.
- Galliford Try, the UK construction business featured as the portfolio example in the last two reports, has an improved valuation, although in our view it remains somewhat overlooked.
In addition, Yu Group, which was only brought into the Trust’s portfolio earlier this year, also added 1.1%. Yu Group is an immature utility supplying the corporate sector and is set to take a greater market share over the coming years.
Significant detractors
- Vanquis Banking Group is a provider of credit to those with impaired credit histories. Whilst Vanquis’s underlying operations are delivering the turnaround anticipated, it experienced a series of claims coordinated by a single claims management company, and while the claims were themselves individually modest, Vanquis was obliged to fund the costs of the Financial Ombudsman as well as the cost of researching each claim. It is interesting to note that Financial Conduct Authority has actively sought to reduce Vanquis’s costs by potentially increasing the charges of the claims management companies, possibly believing that mass claims like these are largely spurious.
- I3E’s share price was weak as the energy price peaked. I3E, like CMC Markets highlighted above, has been a top performer for the Trust in the past, and continues to pay a generous dividend yield, with considerable recovery potential when the energy price rises again.
No other holding detracted more than 0.5%; The FTSE 100 Put option detracted 0.3% in this period, its term having expired in December.
DIVI : Diverse Income hopes that the tide has turned in its favour
