The ten investment trusts with the highest dividend yields
Investment trusts are one of the best ways to participate in the stockmarket, and the way they are structured means they can maintain their dividends in lean times. Here, Rupert Hargreaves looks at the ten highest yielding investment trusts on the market today.
Here at MoneyWeek, we believe investment trusts are one of the best ways to participate in the stockmarket. Trusts have a record of beating unit trusts, tend to have lower management fees, and their closed structure means they can more easily make long-term investments.
On top of these qualities, they can also borrow money to invest, which can improve returns, and they can also hold back 15% of the income generated from their portfolios every year to build what is known as a “revenue reserve”.
This is another key difference between investment trusts and traditional open-ended funds. It means in the good years they can put aside a bit of money to build a pot of cash they can dip into when the environment changes.
As such, they are more likely to be able to maintain their dividends over the long term. Indeed, in 2020 when a large number of companies decided they were going to hold back their dividends in order to conserve cash in the pandemic, few trusts followed. They were able to dig into their revenue reserves and maintain shareholder distributions.
Using this strategy, some investment trusts have grown their dividends every year for more than half a century!
With that in mind, is a list of the ten highest-yielding investment trusts on the market today.
Some of these investment companies support dividend yields in the double digits, but a word of warning – many rely on non-traditional investments to generate returns, including assets like mortgage securities and short-term loans. Not only are these assets more complex and, as a result, riskier, but they also tend to incur higher fees and charges.
Premium (discount) (%)
Ongoing charges (%)
Crystal Amber Fund
VPC Specialty Lending Investments
European Assets Trust
Honeycomb Investment Trust
Henderson Far East Income
CQS New City High Yield Fund
Real Estate Credit Investments
Twentyfour Select Monthly Income Fund
Atlantis Japan Growth Fund Limited
Crystal Amber Fund (LSE: CRS), the Aim-listed activist fund, tops the list of the highest-yielding investment trusts, and it’s also trading at one of the largest discounts to net asset value. However, while the headline yield figure might seem attractive, I should note that the firm is in the process of selling off its underlying assets and returning the capital to investors. Therefore, further cash returns are likely to be lumpy.
The rest of the list is primarily composed of investment trusts that own and trade different credit instruments. By targeting different segments of the market, these trusts are able to earn above average market returns, although the trade-off is that they are taking on more risk.
VPC Specialty Lending Investments (LSE: VSL), EJF Investments (LSE: EJFI), Honeycomb Investment Trust (LSE: HONY), CQS New City High Yield Fund (LSE: NCYF), Real Estate Credit Investments (LSE: RECI) and Twentyfour Select Monthly Income Fund (LSE: SMIF) all try to earn outsized returns by investing in different parts of the capital structure. The investment trust structure lends itself to this kind of strategy.
Many of the companies also own equities alongside their credit investments in an attempt to improve overall returns. For example, the CQS New City High Yield trust owns a mixture of equities and debt in its portfolio. Its largest holdings are the bonds of the Stonegate Pub Co followed by shares in the Diversified Energy Company (LSE: DEC), one of the highest yielding stocks in the FTSE 250.
Meanwhile, Real Estate Credit Investments both lends against property directly, and trades property-backed debt securities. Once again, thanks to the unique structure of investment trusts, the firm has quite a bit of freedom to pursue deals where it believes it can earn the highest returns. TwentyFour Select Monthly Income Fund’s portfolio is dominated by preference shares and perpetual securities issued by the financial sector.
The European Assets Trust (LSE: EAT), Henderson Far East Income (LSE: HFEL) and the Atlantis Japan Growth Fund Limited (LSE: AJG) are all relatively straightforward equity investment trusts. As their names suggest, they focus on finding opportunities in Europe, the Far East and Japan.
With the highest yield and the lowest expense ratio, the European Assets Trust stands out. Its aim is to achieve income and capital growth by investing in a portfolio of small and mid-cap securities across Europe excluding the UK. One of Denmark's largest banks, Ringkøbing Landbobank, is a top holding for the trust, alongside Italian pump maker Interpump Group.
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