Numis Securities: Jury still out on success of trusts paying enhanced yields

'Blurring of the lines' between capital and income

The growing number of investment trust boards offering an enhanced yield - boosting payouts from capital reserves - need to consider whether the method is sustainable over the long term, according to a report by analyst Numis Securities.

It noted there has been a "blurring of the lines" between capital and income in recent years and said investors should seek to understand how a fund's yield is generated, rather than just focus on headline figures. Numis said most equity income investment companies charge 60%-70% of management fees and finance costs to capital, which increases the earnings available for distribution. Funds gear up for UK Equity Income sector return after yield hurdle lowered In addition, a growing number of funds are enhancing their dividends by using capital reserves. The trend has been gaining...