The goal for most investors is to beat inflation and earn a higher return than rising prices – that way your money isn’t losing its purchasing power. And with inflation falling, investors are paying even more attention to yields and the current income opportunities on offer.
The Association of Investment Companies (AIC) recently published a list of the top-yielding equity investment trusts.
Here’s a closer look at some of the highest-yielding investment trusts, what investors need to consider when investing for income, and two trusts we think could offer good value.
This article has been written independently and isn't personal advice or a guide on how or where to invest. Investments and any income from them can rise and fall in value, so you could get back less than you invest. If you’re not sure if an investment’s right for you, ask for financial advice. Yields are variable and no income is ever guaranteed. Past performance also isn’t a guide to future returns.
Which investment trusts are paying the highest yields?
Company | AIC Sector | Yield (%) | Discount / premium (%) | |
|---|---|---|---|---|
1. | Henderson Far East Income | Asia Pacific Equity Income | 10.3 | 2.4 |
2. | Marwyn Value Investors | UK Smaller Companies | 9.9 | -51.3 |
3. | British & American | Global Equity Income | 8.5 | -34.8 |
4. | UIL | Flexible Investment | 8.1 | -34.9 |
5. | Chelverton UK Dividend Trust | UK Equity Income | 7.4 | 2.8 |
6. | abrdn Equity Income Trust | UK Equity Income | 7.2 | -4.6 |
7. | BlackRock Latin American | Latin America | 7.1 | -14.2 |
8. | Premier Miton Global Renewables | Infrastructure Securities | 6.9 | -16.0 |
9. | European Assets | European Smaller Companies | 6.8 | -13.0 |
10. | Lindsell Train | Global | 6.7 | -20.7 |
It might (or might not) surprise you to learn that the Henderson Far East Income trust, at the top of the table, had a heady yield of 10.3% as at the end of September.
The second and third place trusts, the lesser known Marwyn Value Investors trust and the British & American trust were not far behind, yielding 9.9% and 8.5% respectively.
The table is made up of an eclectic mix of trusts investing in regions as far apart as the UK, China and Latin America and taking in some commodities along the way.
These levels of yields might sound enticing, and indeed in some cases they might be. However, investing solely on the basis of a high yield is never a good idea.
What investors need to know about high-yielding investment trusts
Sometimes yields are high for a reason, and it’s always wise to know what you’re buying before you invest.
Many of the trusts with the highest yields are also trading on pretty hefty discounts. This means that the price of the trust is below the value of its assets.
For context, Marwyn Value Investors was trading on a discount of over 50% at the end of September, and British & American on a discount of almost 35%.
Again, trusts trading on a discount can sound attractive, and in some cases they are, but you should always ask why something looks ‘cheap’ and whether it is that way for a reason.
For example, is it perhaps harder to sell than some of its peers? Or are the assets in the fund difficult to value?
Another factor to bear in mind is that investment trusts aren’t the only things trading on attractive yields at the moment.
As at 15 October 2024, 2-year gilts were yielding 4.16%.
Now I know what you’re thinking – that doesn’t sound like much compared to yields of up to 10% on some investment trusts. And of course, you’re right that it’s a fair bit lower. But it’s also lower risk.
Gilts are highly liquid, very easy to value and it’s pretty much guaranteed that you’ll get your money back at the end of the two years (believe me, if the government decides not to pay you back then you’ll have bigger things to worry about than your investment accounts). Though, of course, they’re not entirely risk free.
If you like the idea of investing in some attractively yielding investment trusts, then you will need to do your research carefully.
It’s important to make sure they’re run by reliable managers and invest in good quality assets.
You could start by looking at our 5 Investment Trusts for 2024.
However, if you’re looking for income, here are a couple of investment trust ideas which are on pretty attractive yields in our view.
Remember, investment trusts can sometimes invest in specialist higher-risk areas like unlisted (private) companies. Lots also use derivatives and gearing (borrowing to invest) which adds risk. Investors should only invest in them if they have the time and knowledge to carefully select and monitor them.
2 investment trust ideas
Investing in these trusts isn’t right for everyone. Investors should only invest if the trust’s objectives are aligned with their own, and there’s a specific need for the type of investment being made.
You should understand the specific risks of a trust before investing, and make sure any new investment forms part of a diversified portfolio.
City of London Investment Trust
The City of London makes it on to the AIC list with a yield of 4.7% at 27 September.
It’s run by Job Curtis, one of the most highly regarded managers in the sector. The trust aims to give investors income and growth by investing in big, good-quality UK-listed companies. However, the manager can also invest up to 20% overseas if he finds good opportunities.
While 60% of the trust’s value is invested in big companies, over £5bn in size, the remainder is invested in medium-sized and small companies which adds risk.
We think the potential for the trust to keep paying an income in an environment where interest rates are falling makes it attractive.
Annual percentage growth
30/09/2019 - 30/09/2020 | 30/09/2020 - 30/09/2021 | 30/09/2021 - 30/09/2022 | 30/09/2022 - 30/09/2023 | 30/09/2023 - 30/09/2024 | |
|---|---|---|---|---|---|
The City of London Investment Trust PLC | -21.06 | 29.14 | 2.21 | 10.73 | 16.63 |
FTSE All-Share TR | -16.59 | 27.89 | -4.00 | 13.84 | 13.40 |
AIC Investment Trust - UK Equity Income | -18.38 | 43.85 | -14.46 | 12.92 | 13.32 |
HICL
HICL didn’t make the AIC’s list because it doesn’t invest in shares.
Instead, it invests in infrastructure assets that are vital to communities, covering sectors like transport, utilities and healthcare. This trust aims to provide investors with stable, sustainable income over the long term, and some capital growth.
As at 14 October, the trust was yielding 6.4% and trading at a discount of 18.4%.
In HICL’s case, a lot of this discount is because the valuations of the assets in the trust are sensitive to interest rates, and as interest rates have risen, investors have anticipated falling asset values, pushing down the price of the fund.
However, this is a high-quality portfolio on a good yield, so it could pay to practice some patience with this trust.
Annual percentage growth
30/09/2019 - 30/09/2020 | 30/09/2020 - 30/09/2021 | 30/09/2021 - 30/09/2022 | 30/09/2022 - 30/09/2023 | 30/09/2023 - 30/09/2024 | |
|---|---|---|---|---|---|
HICL Infrastructure Plc | 4.69 | 5.47 | 1.77 | -18.82 | 13.66 |
AIC Investment Trust - Infrastructure | 4.34 | 4.04 | -4.22 | -11.60 | 15.82 |