by Faith Glasgow from interactive investor 15th October 2021
The UK equity income investment trust sector proved a wise choice for income investors during the pandemic. At a time when businesses were struggling and dividends were being cut or suspended, trusts could draw on the revenue reserves built up over the years to continue payouts to investors.
In contrast, their open-ended equity income peers, with no rainy-day cash cushion to fall back on, in many cases had no option but to cut dividend payments to investors.
So, as a recent (24 September) research note from QuotedData points out, it is somewhat surprising that only three of the 22 trusts in the closed-ended sector are trading on premiums to net asset value – and even those are all under 2%. Discount figures have changed only marginally since the research was published.
QuotedData highlights the fact that Finsbury Growth & Income and City of London trust, one of the three on a premium, are not only the largest trusts in the sector but the ones pulling in new business: CTY issued more than £106 million of new shares in the 12 months to end June 2021.
Yet CTY’s long-term figures lag most trusts at just 3.9% per year over the past five years. Only two trusts, Temple Bar and Edinburgh Investment, returned less, and TMPL’s performance has picked up markedly since a managerial change last year. In contrast, FGT has returned more than 9% a year over that five-year time frame.
It begs the question of why investors persistently return to CTY. James Carthew of QuotedData points to its status as an Association of Investment Companies’ (AIC) dividend hero with 55 years of unbroken dividend growth. “CTY gets a lot of attention for leading the dividend hero table,” he explains. “Additionally, manager Job Curtis has a great reputation. It’s also large, and I think there’s a tendency for people to associate size with success and solidity.”
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