In focus
The UK
After many years of investor
outflows, UK equities started the
decade on a more positive footing
following the decisive election win for
the Conservatives last year.
However, this positivity quickly
evaporated, with an oil-price war and
the coronavirus crisis causing the
FTSE 100 to fall the most of any major
developed stock market.
This has created unprecedented
challenges for UK equity income
investors, with futures pricing in
dividend falls of about 30 per cent.
In such an environment, Investec
analyst Alan Brierley says investment
trusts have a significant advantage.
“Unlike open-ended funds, where
distributions are directly linked to
underlying revenues, the ability to
retain surplus income and smooth
dividends in challenging conditions
is a critical advantage,” he explains.
“In the aftermath of the 2008 crisis,
despite sharp falls in income, 11 out
of 14 UK equity income trusts still
increased dividends, while the only
dividend cut was one of 7 per cent.”
While no two crises are the same,
Brierley believes UK equity income
trusts can provide meaningful
protection. “The ‘rainy day’ has now
arrived,” he says.
TRUSTNET
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[ SECTOR PROFILE ]
Trust pick
Schroder
Income
Growth
Lowcock says that since
Sue Noffke took over in
July 2011, Schroder Income
Growth has become a
diversified source of
income, derived from
more than 40 holdings.
“The team can also write
call options when they see
opportunities, which can
help boost the income,”
he adds. “The trust has
exposure to tobacco,
pharmaceuticals and oil.”
Schroder Income Growth
is down by 4.51 per cent
over the past five years
compared with 6.45 per
cent from its IT UK Equity
Income sector. It is currently
yielding 6.21 per cent,
although this figure is
unlikely to be sustainable.
The trust is on a discount of
7.98 per cent.
trustnet.com