SVG to launch equity income trust with 6.5% yield target

London-based SVG Investment Managers is preparing to launch the Strategic Equity Income trust, targeting a 6.5% yield. The fund will be run by UK smaller company managers Adam Steiner and Stuart Widdowson.

The pair already run the Strategic Equity Capital trust, the top performing UK smaller company investment trust over three years, which has delivered a 119.9% share price return compared with the 74.3% sector average.

The income trust, which will be listed in the UK, will seek to raise £70 million in ordinary shares and £30 million in zero-dividend preference shares.

While the ordinary shares will target a 6.5% dividend yield in the first calendar year, along with capital growth, the zero-dividend preference shares will have a 6% target yield on a five-year term.

The portfolio will comprise between 25 and 35 UK-quoted stocks, which fall within the £75 million and £1.25 billion investable sector. The trust will have a continuation vote after four years. The board of the trust is yet to be confirmed.

The fee structure is targeting a total expense ratio of 1.5%, with a performance fee of 10% of returns over 150p per share, capped at 1% of the trust's market value, which is not payable until year five.

At present, dividends from stocks on the FTSE Smaller Companies index are 3.7 times covered by earnings per share and 4.4 times cash covered.