Two investment trusts managed by Invesco Perpetual's Mark Barnett have topped the tables of Kepler Partners' new ratings system, which is designed to identify investment trusts that generate a real and dependable income without sacrificing capital.
The service, Kepler Income Ratings, will use a qualitative system designed to assess the attractiveness and sustainability of a portfolio's income credentials for investors looking for dividends.
The firm believes there is an unhealthy focus on yield in the investment trust space, so the ratings are instead weighted towards income generation, dividend growth capital performance and levels of revenue reserve cover.
The system assesses 16 different metrics (see table below) and five of the 24 trusts in the AIC UK Equity Income sector have already received the maximum 5 'Orb' rating.
Sitting at the top of the table with the highest overall Kepler Income Rating is Mark Barnett's £975m Perpetual Income & Growth investment trust.
Kepler said: "This is one of the most well-rounded income funds on offer for UK equity investors, sitting in at least first, second or third quintile for all the metrics we analysed.
"It is managed with a distinctive defensive approach and this is shown by its low levels of drawdowns and volatility, yet its higher allocation to mid caps means it has generated significant capital growth and dividend growth (6.52% per annum over five years)."
| Highest weighting | Medium weighting | Lowest weighting |
|---|---|---|
| Dividend growth over 5 years | Current yield | Average revenue reserve cover over 5 years |
| Portfolio income over 5 years | Average yield over 5 years | Revenue reserve cover increase over 5 years |
| Dividends paid to investors over 5 years | Volatility of share price over 5 years | |
| Capital growth over 5 years | Max drawdown of share price over 5 years | |
| Total return over 5 years | Years of dividend growth | |
| Current revenue reserve cover | Combined hurdle rate (p.a. %)* | |
| Volatility of capital over 5 years | ||
| Max drawdown of capital over 5 years |
*Effect of capitalised charges and dividends paid from capital
The researchers added the trust benefits from having a highly experienced manager in Barnett (pictured) and a "stellar track record", with consistent outperformance, particularly in weaker markets, and dividends up 8% annualised over ten years.
This is followed by the £1.5bn Edinburgh Investment trust, also managed by Barnett.
According to Kepler: "Relative to Perpetual Income & Growth, it has produced lower capital growth and total returns, but has thrown off more in total dividends for shareholders.
"Some may question its low current yield of 3.2%, but it has high levels of revenue reserve cover (1.03x) and it also has one of the lowest combined hurdle rates for the sector at just 0.43%."
