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Investment trusts to weather the dividend drought

Biotech trust Trump benefit may be shortlived

The Big Theme 

Investment trusts to weather the dividend drought

By Dave Baxter, Investors Chronicle, 1 April 2020

The coronavirus pandemic has been disastrous for income investors. Falling asset prices make it a dangerous time to take money from your portfolio and interest rate cuts have restricted yields available. Even more worryingly, the economic uncertainty induced by the current lockdown could result in greater problems for an area many rely on for income.

UK equity income

The UK market has long been a popular hunting ground for income investors, with good reason. At the end of last year, before the pandemic upended markets, the FTSE 100 index was forecast to yield a chunky 4.7 per cent in 2020. But, since then, this market has run into trouble…

“There’s so much uncertainty about whether companies will pay dividends at all or keep cash and defer it,” says James Carthew, head of investment companies research at QuotedData. “It’s names like the oil companies that are a big chunk of the income. That comes back to the concentration of income in the UK market.”

UK picks

When choosing a trust it is important to examine the fundamentals, including how well diversified its investments are and what track record its management team has.

City of London Investment Trust (CTY) is highly rated by analysts including Investec’s research team and Mr Carthew

Mr Carthew also likes Diverse Income Trust (DIVI), which invests in companies of various sizes so is not as reliant on large FTSE 100 stocks. Its risk is also well spread – it had 134 holdings at the end of February.

Read more here

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