- 28 investment funds have a dividend yield of more than 5%
- Nearly a third of the highest yielding trusts are in the UK Equity Income sector
- If interest rates are lowered, some of them could provide income that exceeds the base rate
Investors were having a hard time figuring out how to make money in 2023.
Uncertainty about the global economy and ongoing geopolitical tensions meant that for many, the prospect of investing in the stock market proved to be very volatile.
Ironically, despite the concerns, the support stocks paid off, with the MSCI World stock index rising 24 percent, driven by gains from the Magnificent Seven in the dominant US stock market.
Still, the temptation was to take money out of the stock market and put it into high-interest savings accounts, especially since some of the best fixed-rate savings deals yielded more than 6 percent.
But those interest rates have now disappeared and the best one-year fixed rate deal in This is Money’s best buy independent savings tables yields 5.3 per cent, with rates on a downward trajectory.
Looking for income?: 48 investment funds have a dividend yield of more than 4% according to new research from the Association of Investment Companies
Meanwhile, looking at the bigger picture, investing in the stock market has proven to be the best way to build long-term wealth.
As markets hope for rate cuts in 2024, investors will start thinking about how to invest for long-term income and capital growth.
Investment trusts are coming in – and with savings rates falling, these are looking more attractive.
There are 48 that invest mainly in shares and have a dividend yield of at least 4 percent, providing both potential growth and income for investors, according to research by the Association of Investment Companies.
A total of 28 countries yield 5 percent or more, so they could produce income that exceeds interest rates if interest rates start falling this year.
There are 28 investment companies that have a dividend yield of 5% or more
Fourteen of the trusts on the 28-strong list are from the UK Equity Income sector, accounting for almost a third of the highest-yielding investment trusts.
The trust with the highest dividend yield is Henderson Far East Income. It invests in equities from the Asia-Pacific region and delivers a return of 11.5 percent. It is managed by Janus Henderson and trades at a 4.5 percent discount to net asset value.
Next on the list is Marwyn Value Investors, which has a 10.8 percent yield and operates in the small business sector in the UK. Managed by Marwyn Investment Management, some of the trust’s holdings include luxury goods companies such as Le Chameau and software companies such as AdvancedAdvT Limited.
Another trust in the top three high-yield companies is British and American, which invests in global equities and returns 9.2 percent.
Now that British inflation has unexpectedly risen again to 4 percent for the first time in ten months, the Bank of England could cut interest rates later than previously expected.
Some investment funds aim to provide investors with a generous income and the structure of investment companies is a major advantage.
They allow asset managers to retain up to 15 percent of the dividends they receive each year from the companies they invest in and build up an income reserve to smooth out payouts in lean years.
Eight of the top-yielding mutual funds are what the AIC calls dividend heroes, meaning they have increased their dividends for at least 20 years in a row.
The highest yielding of these dividend giants is abrdn Equity Income Trust, which has been increasing its dividend for 23 years and offers a 7.7 percent yield.
There are a further thirteen trusts that have increased their dividends for ten years in a row.
Why investment funds?
Investment trusts are a popular way for investors to gain exposure to the stock markets for many reasons.
They are easy to buy and sell, especially through an online investment platform.
They are managed by an investment manager with extensive market knowledge, own a range of stocks (diversifying risk) and are not too greedy when it comes to costs.
Investment companies also have structural advantages that help them maintain and grow their dividends year after year. But even with all these compelling factors, there is no guarantee that they will guarantee positive returns year in and year out.
Annabel Brodie-Smith, communications director at the AIC, said: ‘For investors looking for income, this list of high-yield equity investment trusts is a good place to start.
These investment trusts provide access to equities across a wide range of regions and sectors from the UK and around the world, including commodities, infrastructure and biotechnology.
“More than a third of these 48 mutual funds have increased their dividends every year for the past decade, and eight have increased their dividends for 20 years or more.”