The investment trusts with long-term yields above 10%

By looking at the current yield of investment trusts compared to price per share 10 years ago, AJ Bell found that a total of four investment trusts had a yield of above 10%.

Funds and Investment Trusts September 6, 2019 by Tom Bailey

Investors often jump at the chance of owning an investment trust yielding north of 4%. However, according to new data from AJ Bell, several funds are yielding over 10% when looked at on a 10-year basis.

By looking at the current yield of investment trusts compared to price per share 10 years ago, AJ Bell found that a total of four investment trusts had a yield of above 10%.

Top of the list, the analysis found, was Witan, with a 10-year yield of 17.9%, equating to just under £1,800 for every £10,000 invested a decade ago. Witan’s strong yield performance comes, in part, thanks its consistent ability to raise its dividend (it has done so every year for the past 44 years).

Any investor who purchased the trust a decade ago and reinvested all dividends paid would have seen a total return of 237.7%. In contrast, the MSCI World index provided a total return in sterling of 209.8% and the FTSE 100 gained 120% over the same period.

Laura Suter, personal finance analyst at investment platform AJ Bell, says: “The reality is that most investors buy and hold over a long period, and these figures will be a welcome boost to those who bought 10 years ago and are sitting on a hefty yield today. These trusts are not just high yielders, they have proved that they can consistently deliver increases in their payouts – in some cases for five decades or more.”

Top 10 trusts by current income:

Company AIC sector Years of dividend increases 2018 yield on 2009 price 2018 yield on 2019 price Total return (%age) Growth of £10,000 pot since 2009 Income today on £10,000 invested in 2009
Witan Global 44 17.9% 7% 237.7% £33,767 £1,792
Henderson Smaller Cos UK Smaller Cos 16 11.0% 3% 432.1% £53,214 £1,101
BlackRock Smaller Cos UK Smaller Cos 16 10.3% 2% 519.9% £61,986 £1,030
British & American UK Equity Income 24 10.1% 24% 17.0% £11,695 £1,012
Schroder Oriental Income Asia Pacific Ex Japan 12 9.2% 4% 259.1% £35,911 £915
BlackRock Throgmorton UK Smaller Cos 15 8.6% 2% 540.9% £64,091 £862
Scottish Investment Trust Global 35 8.5% 4% 158.1% £25,813 £852
Athelney UK Smaller Cos 16 8.2% 4% 209.0% £30,897 £824
Henderson Far East Income Asia Pacific Ex Japan 11 8.0% 6% 132.8% £23,283 £801
Edinburgh Investment UK Equity Income 14 8.0% 5% 147.4% £24,743 £798
Source: AJ Bell/AIC/FE. Figures to 2nd September 2019, and 30th August 2009. Figures based on AIC Dividend Heroes list and Next Generation Dividend Heroes. Dividend data based on 2018 full year payout.

Not all the highest yielding trusts (see table below) produced the best total return. For example, BlackRock Throgmorton has a respectable 10-year yield of 8.6%. It would have produced an income of £862 on every £10,000 invested. However, thanks to strong price appreciation of its holdings, it has been able to provide a total return of 540.9%.

Top 10 trusts by total return:

Company AIC sector Years of dividend increases 2018 yield on 2009 price 2018 yield on 2019 price Total return (%age) Growth of £10,000 pot since 2009 Income today on £10,000 invested in 2009
BlackRock Throgmorton UK Smaller Cos 15 8.60% 1.70% 540.90% £64,091 £862
Scottish Mortgage Global 37 3.20% 0.60% 523.40% £62,341 £322
BlackRock Smaller Cos UK Smaller Cos 16 10.30% 2.00% 519.90% £61,986 £1,030
Henderson Smaller Cos UK Smaller Cos 16 11.00% 2.60% 432.10% £53,214 £1,101
Standard Life UK Smaller Cos UK Smaller Cos 12 6.30% 1.50% 402.30% £50,229 £633
BMO Global Smaller Cos Global 49 3.80% 1.10% 293.60% £39,357 £380
Scottish American Global Equity Inc 39 6.90% 2.80% 267.10% £36,705 £689
Schroder Oriental Income Asia Pacific Ex Japan 12 9.20% 3.80% 259.10% £35,911 £915
Bankers Global 52 5.60% 2.10% 257.70% £35,773 £563
F&C Investment Trust Global 48 4.40% 1.50% 254.00% £35,398 £441
Source: AJ Bell/AIC/FE. Figures to 2nd September 2019, and 30th August 2009. Figures based on AIC Dividend Heroes list and Next Generation Dividend Heroes. Dividend data based on 2018 full year payout.

Whether a high yield or high total return is preferred depends on what the investor hopes the trust will do for them. For investors looking to grow capital, BlackRock Throgmorton with its strong total return would be preferable while for those looking for a steady income stream to rely upon, a higher yielding trust would be optimal.

However, high yields can be deceptive, meaning some trusts with high 10-year yields turned out to be less than stellar investments.

This is the case with British & American trust, with a 10-year yield of 10.1%. 

However, over the past 10 years, the trust has seen its share price decline by 58%. Despite this huge price decline, the trust has been able to continue to provide income. For every £10,000 invested in 2009, it would have produced an income of £1,012, roughly the amount produced by other high yielding trusts.

This ability to produce income has helped to give it a 10-year total return of 16.9%. However, that is assuming the dividends were reinvested.

Investors don’t expect to have to reinvest their dividend payouts to protect the capital initially invested – that would be self-defeating. Any investor not reinvesting dividends and investing in the trust for the sake of producing an income, the capital loss would have been painful. 

In total, 20 trusts had a 10-year yield of more than 7%.

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