Where to find the best equity income trusts? The answer may surprise you

Broker Stifel highlights the highest yielding equity investment trusts, revealing that UK names have been overtaken by a surprising sector.

Investment trust broker Stifel has shone a spotlight on 31 equity trusts offering investors bumper income returns, with yields of 4% or more and dividends hikes over the past year.

While it may not be income investors’ first port of call, Asia is leading the way when it comes to income, according to the analysis. Two Asian income trusts sit at the top of the table (see below): in first position is Henderson Far East Income (HFEL ), managed by Janus Henderson’s Sat Duhra, with a 10.8% yield.

This impressive income stream hasn’t gone unnoticed: the £417m portfolio currently trades on a 3.6% premium to net asset value (NAV).

However, Stifel analyst Iain Scouller notes that Henderson Far East Income’s high yield has potentially come at the cost of capital growth. Over the past six months, HFEL’s NAV is up 6% and over three years it has gained 11%.

‘In contrast, the lower yielding Schroder Oriental Income (SOI ), with a 3.9% yield is up 9% in NAV total return terms over six months and 31% over three years,’ the analyst noted.

Aberdeen Asian Income (AAIF ) claimed second spot with a 7.1% yield. Managed by Flavia Cheong, Isaac Thong, Eric Chan, it currently trades on a 10% discount. Back in January, the board introduced a policy to pay out 6.25% of NAV each year.

JPMorgan Asia Growth & Income (JAGI ) appeared in eighth spot.

Unloved UK shines through

UK equity trusts still feature heavily in Stifel’s list, accounting for 15 out of 31 funds. Montanaro UK Smaller Companies (MTU ) claimed third spot with a 6.4% yield, followed by Aberdeen Equity Income (AEI ) offering a 6.2% income.

Other UK equity income trusts in the top 10 include Henderson High Income (HHI ) with a 5.9% yield, Merchants (MRCH ) on 5.3%, alongside Shires Income (SHRS ) and Schroder Income Growth (SCF ) on 5.1% respectively.

Well-known names Lowland (LWI ) and Temple Bar (TMPL ) featured in joint 15th position with a 4.4% yield, followed closely by City of London (CTY ), paying a 4.3% annual income.

‘Manufacturing yields’

Stifel isn’t positive on each trust on the list, however. Scouller sounded a note of caution on the 14 trusts in the list (italicised in the table) which pay out a fixed amount of NAV in the form of dividends. That appears to be a growing trend in 2025, with the likes of Polar Capital Global Financials (PCFT ) and Aberdeen Asian Income introducing this as a policy so far this year.

‘A number of these trusts paying out a “fixed percentage of NAV” are also “manufacturing” yield through this process, in our view,’ he said.

‘This is because a number of them are paying dividends which are at a level higher than the trust receives in its revenue earnings-per-share.’ 

This means they are funding the revenue shortfall by paying out of their capital, in other words, by selling assets. 

Scouller is concerned that if NAVs fall, dividends will automatically be cut.

JPMorgan Global Growth & Income (JGGI ) is one example of a trust which has adopted the practice and proven very popular. It features in joint 19th position with its promised 4% yield. Over the 12 months to the end of June, its NAV fell 3.1%. Rather than cut the dividend, the board decided to increase it to 23p.

On a more positive note, Scouller said many traditional income trusts have paid dividends that are fully covered by revenues, and some have meaningful revenue reserves. 

‘These reserves can be used to smooth out dividends if necessary and we do think that, by using revenue reserves, these investment trusts should be able to deliver a more robust level of dividend than similar unit trusts and open-ended funds that do not maintain reserves,’ he concluded.