Oriel Investment Funds have conducted some research to compare some of the higher yielding equity funds against the FTSE All Share Index and ten year UK Gilt Yields.


With 10 year UK Gilt yields falling to 2.4% last week compared to the FTSE All Share of 3.7% it may make sense to look at a higher yielding equity fund for those looking for income and willing to take some equity risk in return for it.

Iain Scouller of Oriel securities assesses that there are 25 funds primarily investing in equities with a market capitalisation of over £30 million that have a historic yield of 4% or more (Table).

Oriel does say that some of these looked to be at a premium when compared to their Net Asset Value, singling out Edinburgh IT, at 9% premium, Merchants Trust at 12% premium (as well as equity leverage of 25%) and Scottish American at 9% premium.

Table: Funds primarily investing in equities, with a dividend yield over 4%

Fund

Historic yield (%)

Premium / disc (%, fair value, ex revenue)

Market cap (£m)

1 year NAV growth (%) (a)

3 year NAV growth (%) (a)

European Assets

8.4

8 disc

83

+2.6

-22.6

Shires Income (b)

7.0

1 prem

51

-1.7

-14.7

Merchants Trust

6.4

12 prem

369

-6.4

-15.7

British Assets

5.2

1 prem

341

-3.1

-8.5

Henderson Far East Income

5.2

6 prem

284

-7.5

+9.6

City of London IT

5.1

4 prem

589

+0.2

-3.0

Dunedin Income Growth

5.1

4 prem

304

+0.2

-6.7

Schroder Income Growth

5.1

2 disc

123

-1.6

-1.4

Edinburgh Investment Trust

4.8

9 prem

845

+5.6

-1.0

Murray Income

4.8

5 prem

382

-0.3

-5.0

Securities of Scotland

4.7

3 disc

100

1.3

-7.6

Temple Bar

4.6

9 prem

484

-0.4

+15.7

Standard Life Equity Income

4.6

2 prem

100

-5.5

-6.5

JPMorgan Mid Cap

4.5

12 disc

94

-6.1

-18.9

JPMorgan Claverhouse

4.5

2 disc

216

-7.9

-10.6

Blackrock Commodities Income

4.4

5 prem

116

+1.4

-8.2

Murray International*

4.4

8 prem

910

+1.5

+19.1

Jupiter Primadona Growth

4.3

2 prem

41

-6.3

+1.0

Scottish American

4.3

11 prem

290

-2.4

-5.4

F&C Capital & Income

4.2

8 prem

175

-3.3

-11.3

Value and Income (c)

4.2

9 disc

84

0.0

-3.4

Schroder Oriental Income

4.1

2 prem

237

+5.7

+27.8

Aberdeen Asian Income

4.0

4 prem

220

+7.4

+41.6

Mercantile*

4.0

8 disc

897

-6.8

+1.0

Keystone

4.0

1 prem

153

+0.8

+3.1

FTSE 100

3.8

n.a

n.a

-3.3

-5.3

FTSE 250

3.1

n.a

n.a

-0.7

+10.0

FTSE Small Cap (xIC)

3.2

n.a

n.a

+4.2

-2.1

The high yielders list also includes, says Oriel, some that are heavily weighted in UK equities such as City of London IT, Schroder Income Growth, Edinburgh IT, Mercantile and JPM Mid Cap.

European Assets and Henderson Far East Income are obviously invested outside of the UK.

Chart 1: FTSE All Share Index yield vs UK 10Y Gilt Yield over 3 years

Gilts v FTSE All Share - click to enlarge image

Gilts v FTSE All Share - click to enlarge image

Oriel is of the opinion that, when comparing the Gilt Yields to the FTSE All Share (Chart), the market may be expecting some dividend cuts from the high yielding equities. Many high yielding investment trusts do though have ‘substantial dividend reserves’, which could be used to pay or increase dividends when not covered by revenue. An advantage, says Oriel, of investment trusts over some other investments.

Table data source: Thomson Reuters Datastream. Includes Funds primarily investing in listed equities. Excludes funds with market capitalisations of less than £30m. Excludes funds with multiple share classes. Discount/premiums based on estimated NAVs diluted (ex-revenue) at close on 19.08.11. NAV performance figures are based on diluted NAV at par. (a) Capital return only (b) Portfolio is 90% invested in equities and 36% fixed interest, and 26% leverage per July 2011 factsheet. (c) Portfolio is two-thirds equity and one-third property, the property portfolio is primarily financed through long term debt.
Chart data source: Thomson Reuters Datastream

Comment Here!

comments