by Kyle Caldwell from interactive investor, 30th April 2024:
For income-seeking investors, the ideal scenario is to find a fund with a high yield that delivers inflation-beating dividend growth and produces positive total returns (capital growth and income returns combined).
However, ticking all three boxes is hard to consistently achieve, which is reflected in research carried out for interactive investor by QuotedData.
The analyst screened the investment trust universe to find which income-focused strategies provided real year-on-year dividend growth (ahead of the rate of inflation which averaged 6% in 2023), while also having a yield in excess of 4%, and producing positive total returns. All figures are to the end of 2023.
Just 11 (or 10 as CVC Income & Growth appears twice) investment trusts passed the three tests, and they are named in the table below.
When relaxing the criteria by removing the requirement to produce positive total returns, an additional 11 succeeded in yielding 4% or more while also growing their dividend.
Andrew Courtney, an analyst at QuotedData, points out that most of the investment trusts that passed the three tests are specialist income funds. This is reflected in five investment trusts focusing on debt making the grade.
Courtney says: “The bulk of the trusts from the screen were specialist income funds, which have benefited from credit market dislocations created by higher rates of volatility. Conditions over 2023 were particularly attractive for companies with flexible mandates, such as CVC Income & Growth, that were able to rebalance allocations as opportunities presented themselves.”..
He says: “It is difficult to understand how such extreme levels can be justified, particularly for companies such as Aquila European Renewables and Downing Renewables & Infrastructure, both of which have highly diversified portfolios that continued to generate impressive fundamental returns.”
Alongside that duo, the other five trusts from the sector that passed two of the three tests were Greencoat Renewables, Foresight Solar, Gore Street Energy Storage Fund, VH Glob Sustainable Energy Opp and SDCL Energy Efficiency Income.
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