Investors looking for income have seen a turnabout in dividends from funds as more are generating yields above the FTSE 100 average of 3.76%.
The observation comes from the Association of Investment Companies (AIC) that has tracked fund performance of more than 200 funds against the FTSE 100 to reveal that 78 or 38% are ahead of the market.
The AIC is trade body for closed ended investment companies, including investment trusts and venture capital trusts.
The top performers for the year ending October 31, 2012, were:
- Juridica Investments (Litigation) – 12.6%
- IRP Property Investments (Property) – 11.3%
- British & American (UK growth and income) – 10%
- Greenwich Loan Income (Debt) – 9.8%
- ISIS Property (Property) – 9.5%
- Premier Energy & Water (Utilities) – 9.4%
- Schroder Real Estate (Property) – 9%
- Picton Property Income (Property) – 8.8%
- Invesco Leveraged High Yield (Global High Income) – 8.5%
- UK Commercial Property (Property) – 8%
Despite the vagaries of the market, five of the top 10 firms were property funds – with the rest in litigation, debt, utilities and growth funds.
Income in demand
All the top 10 performers returned average yields of 8% or more.
The AIC’s Annabel Brodie-Smith said: “Companies across a wide range of sectors are offering above FTSE 1000 average yields. As higher yielding sectors have become more established over the years, property, infrastructure and debt have reflected how much investors look for income and the strength of the investment company when considering illiquid assets.
“The Asia Pacific and Latin America have also seen many new income fund launches.”
Income is in demand, explained Brodie-Smith, with UK growth and income investments in high demand.
Consistent dividends
“Certainly income is in fashion, especially in a time of low interest rates. Investment companies are focussing on delivering shareholder value from by generating dividends. Many companies can hold back some income they pick up each year for distribution in leaner times.
“This has helped consistent dividend payments in good and bad times, especially in the UK and global sectors. The UK Growth and income sector has tracked net asset value for the past two years or so.”
However, the AIC urges investors not to opt for growth with first giving more thought to yield, pricing and other factors.
“Look beyond the income at the bigger picture. Investors should consider important issues like fund charges, discount/premium, dividend cover, gearing, as well of course as the underlying portfolio,” said Brodie-Smith.
