Investment trusts provide income solution following rate cuts

J.P.Morgan Asset Management says investment trusts could provide an alternative income for investors and savers as the Bank of England cuts interest rates again.

"As rate cuts reach new lows, investment trusts with strong revenue reserves are able to maintain regular dividend payments, thus appealing to investors looking for a reliable income," said James Saunders Watson, Head of Sales and Marketing for Investment Trusts at J.P.Morgan Asset Management.

Many established investment trusts have considerable revenue reserves as a result of their ability to retain up to 15% of their annual income, rather than having to distribute it. As such investment trust boards are able to enhance annual dividend payments to shareholders by drawing on their reserves to cover any shortfall in the income they receive during market downturns, such as experienced today.

Saunders Watson went on to say, "Long term savers and investors, who have seen their income reduced with the lowering of interest rates, could benefit from the regular returns investment trusts can provide through the payment of dividends. The key for such investors is to ensure long term investing so they are not affected by any potential short term capital volatility."

A recent announcement by J.P.Morgan Asset Management managed The Mercantile Investment Trust announced the board had proposed a third interim dividend of 6.00p per share to be paid in February 2009, thus providing a dividend yield of 5.63% (as at 07.01.09) for shareholders.