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Wealth managers unveil their top income trust picks
by Danielle Levy on Nov 07, 2012 at 13:55
The UK Growth & Income investment trust sector offers attractive yields for income-seeking clients, the prospect of capital growth and access to some of the most established managers in the business. But trading on an average premium of 2%, is the sector now looking too expensive?
James Maltin of Rathbones believes the sector is starting to look richly priced. ‘We have made money on a number of these trusts and we are not selling out, but I would caution people not to buy at these levels,’ he said.
He still views UK income-oriented investment trusts as attractive in comparison to their open-ended counterparts and is happy to remain in holdings, but is in no rush to increase exposure. He highlights Temple Bar , which is yielding 3.7% and trading on a premium of 2.2%, alongside Troy Income & Growth , trading on a 1.6% premium with a 3.6% yield, as top picks.
John Newlands (pictured), head of investment company research at Brewin Dolphin, is more sanguine, saying that even though discounts are now looking tighter and a number of trusts are trading at a premium, he is ‘staggered at the range of quality in the sector’.
‘In today’s investment climate, it is very hard to get a useful return on fixed income markets, gilts don’t look rewarding, so I still see a place for [income investment trusts],’ he explained.
He currently views Neil Woodford’s Edinburgh Investment trust as ‘far too expensive’. It has an attractive 4.3% yield, but trades on a 2.7% premium. However, Newlands says the manager has delivered even though the trust has an awkward capital structure.
Mark Barnett’s Perpetual Income & Growth remains his ‘absolute favourite’ in the sector, yielding 3.8% and sitting on a slightly smaller 1.2% premium, while he is also positive on Finsbury Growth & Income and Standard Life Equity Income .
Mick Gilligan, head of research at Killik & Co, views Nick McLeod-Clarke’s BlackRock Income & Growth as a potential buy, on a 6.2% discount and a 3.7% yield, pointing to his track record of achieving dividend growth.
‘Since the start of the year the performance in the sector has been up 17%, and they are up 13%, but I think they have done a reasonable job over time, so on a 6% discount it looks attractive to me,’ Gilligan said.
He also views Standard Life Equity Income on a 4% discount as potentially attractive, and is backing Perpetual Income & Growth over Edinburgh.
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- Temple Bar (Ordinary Share)
- Troy Income & Growth (Ordinary Share)
- Finsbury Growth & Income (Ordinary Share)
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- BlackRock Income and Growth (Ordinary Share)
- Lowland (Ordinary Share)
- Schroder Income Growth (Ordinary Share)
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