30 Aug 2010 | James Budden

Investment trusts get hip 

Those searching for income yielding equities now may have to look further afield than the UK. Historically these shores have been renowned for dividend paying companies while those firms based in North America and Asia have tended to reinvest profits in the businesses  rather than pay them out to shareholders.

But the great financial crisis of 2008 saw traditional income paying sectors in the UK such as banks, house builders and retailers cut or abandon pay outs to their investors and in 2009 dividends from UK companies fell by 15% against the previous year. Then to cap it all the Deepwater Disaster totally wiped out BP’s ability to pay its more than £5bn dividend to shareholders. At the time BP accounted for £1 in £7 paid out by companies in the FTSE 100.

All in all a bleak picture for income orientated investors and in an environment when cash deposits compare negatively to inflation. Small wonder then that investors are keen to look overseas. The investment trust sector has been especially busy launching new funds to meet this potential demand. Polar Capital have raised £89m for a global healthcare income trust, J.P. Morgan Emerging Markets Income trust took £104m at launch and Aberdeen have just collected £52m in their new Latin American Income Trust. This is all good news for the sector and shows that investment trusts are still prepared to innovate, giving a lie to the dinosaur label often slapped on the industry. 

The Global Growth and Income sector listed by the AIC is somewhat more established than this welcome wave of entrants . The Baillie Gifford managed (since 2003) Scottish American Investment Trust (SAINTS) was founded in 1873 and today looks to provide real dividend growth and increase capital from a global portfolio of investments.  Currently it has 22% invested in emerging markets* and many of its UK listed companies derive significant income from overseas activities. This is a development to some extent accelerated by the crisis of 2008 but it also reflects the thinking of the manager and is thus in tune with the motivation behind the recent investment trust launches.

SAINTS yielded 4.6% and its discount was 2% according to the AIC monthly statistics at 31/07/10. Aberdeen’s ever popular Murray International offered 3.8% and stood at a premium of 7.4% at the same date. Both trusts are seemingly trendy again after all these years.
 

You can find out more information about SAINTS on the Baillie Gifford website.

*As at 30 July 2010, source Baillie Gifford.

Please remember that ongoing stock market conditions and currency exchange rates will affect the value of investments and any income from them. Investors may not get back the amount invested.

SAINTS invests in emerging markets where difficulties in dealing, settlement and custody could arise, resulting in a negative impact on the value of your investment.  Investing in emerging markets may cause greater fluctuations in the value of the Trust compared to investing in established markets.