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Bargains abound as investment trust sector yield spikes to 21st century high

Biotech trusts top performance charts in February

Bargains abound as investment trust sector yield spikes to 21st century high
Unweighted yield hit 5.2% at end-October

David Brenchley, Investment Week, 25 November 2020

Income has been hard to come by for UK investors in recent years, and this was particularly the case in 2020 as Covid-19 wreaked havoc on dividends from stocks around the world. Global payouts are expected to fall by $224bn in 2020, according to Janus Henderson.

However, the investment trust sector has managed to grow yields through the year, from 3.1% at the end of 2019 to a peak of 5.2% by 31 October, a figure the AIC confirmed was the highest month-end yield this century…

Bargain hunting

Head of investment company research at QuotedData James Carthew thinks some areas of the IT universe are now trading on yields that “look almost too good to be true”.

“Often [a spike in yields] is an indication that dividend cuts are in the offing, and this may be true for a handful of investment companies, but in this case, I think that we may just be seeing some bargains,” Carthew reasoned…

“The managers that we have talked to don’t see dividends snapping back to pre-COVID levels, rather they foresee a gradual recovery,” Carthew said.

“Nevertheless, barring a much longer economic slump, it should be possible for most ‘dividend heroes’ to maintain their record of growing dividends.”

Elsewhere, Carthew noted Henderson Diversified Income, currently offering a yield of around 5% and trading on a 2.6% discount, as a sensible, conservatively managed fund in a debt sector that can come with a very high yield but equally high risk.

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