Janus Henderson manages two flagship investment trusts that can be relied upon to generate solid returns with a rising income, even if they don’t top the performance tables.
However as we enter a recession, one of them makes a better investment.
A discounted trust with growing dividends
Bankers Investment Trust (LSE: BNKR) invests globally and has £1.5bn of assets. Its shares trade on an 8% discount to net asset value (NAV) and yield a modest 2.4%, but the dividend has been increased every year for 55 years. Additionally the management fee is just 0.42%.
Returns of 36% over five years are well behind the MSCI World index at 56%, though Bankers was slightly ahead in the previous five, resulting in ten-year returns of 178% versus 216% for the index.
“We struggle with stock-picking when macro-factors are dominating and have struggled to balance income and growth in the last ten years,” says manager Alex Crooke. “The next ten should provide a better environment for our style.”
A UK-focused trust with the lowest fee
City of London Investment Trust (LSE: CTY), which has £1.8bn of assets, has been managed by Job Curtis since 1991, making him one of the longest-serving managers in the sector.
The trust invests almost entirely in the UK, with a strong income focus. Its shares yield 5.3% and trade on a 5% premium to NAV, yet the five-year return has been only 8.3% – 3% behind the FTSE All Share index.
The dividend has increased every year for 55 years, while the management charge of 0.325% is one of the lowest in the sector. These go some way to explain the trust’s premium rating, but investors clearly have considerable faith in both the manager and the UK market.
The UK faces formidable economic challenges but so do many other countries, and 70% of the corporate earnings of the FTSE100 are earned overseas. The UK market is over-represented in “value” rather than “growth” companies, but that is reflected in a valuation of under nine years’ earnings and a dividend yield of over 4%.
Which trust should you invest in?
City’s premium to NAV is a serious obstacle to investment at a time when the sector average discount is 15%.
Despite the obvious attractions of the UK, the broader spread of Bankers’ assets, its geographic diversification, its record and its discount make it a more attractive option.
A trust like this still won’t top the performance tables, but nor will it give investors the roller-coaster ride of the growth trusts. Its moderate yield provides cautious investors with a steady and growing income without cramping Crooke’s investment style. “It’s looking quite positive” – which is about as bullish as he gets.