UK equity income investment trusts remain attractive

Aberdeen Asset Managers believes the case for investing in UK equity income investment trusts remains attractive.

Such trusts often benefit from good income reserves, and Aberdeen also sees a healthy outlook for both capital and income growth from the UK stock market in 2007.

Aberdeen believes in early 2007 that the opportunities to invest in UK companies for income continue. The underlying financial position for most UK companies is robust, with debt levels substantially reduced from the heady days of 2000. The result of this is that some quoted companies have been returning large amounts of surplus cash to shareholders via buy backs and increasing regular dividends, while others have made special distributions to shareholders, a trend which looks set to continue this year. Despite a recent excellent run, UK equities remain attractively valued in terms of historic price-earnings ratios. Company earnings’ growth generally also remains strong, with M&A activity, in particular amongst mid-cap companies, continuing to support ratings.

Defensive character of investment trusts for income

Unlike their unit trust peers, investment trust companies do not have to distribute all the income from the dividends they receive each year. Instead they are able to hold some of this money back in their revenue reserves for subsequent years, when dividend payments from companies may not be as strong. As a result, they can smooth their annual dividends to shareholders, thus reducing the volatility in the level of income investors receive year-on-year.

Using this approach, the two UK equity-income investment trusts managed by Aberdeen have been able to increase their total dividends for well over a decade. Murray Income Trust PLC and Dunedin Income Growth Investment Trust PLC are also amongst the oldest investment companies, being founded in 1923 and 1873 respectively. Today, both investment companies enjoy substantial revenue reserves.

Anne Richards, Chief Investment Officer at Aberdeen Asset Managers, says: “We believe that undemanding valuations coupled with healthy earnings and dividend growth mean our UK equity income investment trusts are well positioned for 2007.”

Piers Currie, Head of Investor Relations, Investment Trusts, at Aberdeen adds, “One characteristic of investment trusts is their ability to build revenue reserves which can mean reduced income volatility, despite the ups and downs of capital performance in any particular year. The long-established investment trusts that we manage in this area also enjoy lower total expense ratios than many unit trusts in the same space and so may appeal to the self-directed investor looking to select their ISA before the tax year end.”