Investors warned off income trusts ahead of base rate rises

Investors should avoid income-paying trusts after the sector moved to trade on a premium for the first time since the financial crisis, analysts have warned, amid growing expectations interest rates could rise this year.

Demand for yield has closed discounts on the 83 trusts across the AIC universe which pay a yield of 3% or more by the end of 2013, according to broker Winterflood. This trend has continued this year, and is even more visible the higher the income on offer. Trusts paying an income of more than 5% were trading on an average premium of 3.4% by the end of February, compared to a discount of 4.8% in January 2013. Those paying no yield, on the other hand, have remained on double-digit discounts: the average non-yielding trust was on a 15.1% discount on 28 February.  Alternative assets ha...