F&C stresses income advantages of investment trusts

At a briefing earlier this week, Peter Hewitt, manager of F&C Managed Portfolio Trust, an investment trust of investment trusts, underlined the advantages for income investors of holding investment trusts in their portfolio.

"If you are searching for equity income, investment trusts have marked advantages over OEICs," said Hewitt.

A key benefit of investment trusts is their ability to hold revenue reserves, meaning there is a pot of money from which to pay an income to investors even in times when the trust's underlying holdings are cutting their dividends. Hewitt also pointed to the security of income and diversity of income sources enjoyed by investment trusts.

F&C Managed Portfolio Trust is an innovatively structured multi-manager investment trust, offering a choice of Income or Growth portfolios. Income generated by the Growth portfolio is transferred to the Income portfolio, with an equal amount of capital growth being transferred back into the Growth pool.

Picking up the point about diversity of income sources, Hewitt pointed to the presence in the trust's portfolio of three Asian income trusts - Aberdeen Asian Income, Henderson Far East Income and Schroder Oriental Income, the last of which was purchased for the Income portfolio earlier this year.

"In a time when company dividends in the West are coming under pressure, the ability to look to the Asia Pacific region, where there is a growing dividend culture, is a real bonus for investors," said Hewitt.

Closer to home, Hewitt is keeping faith with Neil Woodford's team through his holding in Perpetual Income & Growth Investment Trust (PIGIT), managed by Mark Barnett. "If you look at the performance year-to-date of PIGIT compared with Temple Bar, both of which are UK Growth & Income trusts in the top 10 holdings of the Income pool of Managed Portfolio Trust, Temple Bar has done far better," said Hewitt. "Temple Bar, which is an out-and-out value investor, has outstripped the FTSE All-Share, while PIGIT, although it has made money in absolute terms, has lagged behind. The main reason for this is that Woodford's desk has steered clear of banks and mining stocks."

Pointing to a further potential advantage of investment trusts over their open-ended counterparts, Hewitt said: "You can also buy Perpetual Income & Growth on a discount of nearly 5% to net asset value [4.51% at 13 October, source: Trustnet], which, if Woodford's thesis is proved right - as it usually has been over the past 20 years, in spite of there being periods where his style is out of favour - means you can buy the UK's favourite fund manager on the cheap."