SHIRES INCOME: The high-yield investment trust standing apart from rival funds

Shires Income goes under the radar of most investors. Not because it doesn’t do a good job, but as a result of the investment trust’s small size – which means it fails to get on the fund ‘buy’ lists of either City wealth managers or trading platforms.

Yet it had its moment in the sun last week when the Association of Investment Companies (AIC), the trade organisation championing investment trusts, named it on a list of income-friendly funds.

The trust, run by Aberdeen Investments and capitalised at just above £100 million, was among 26 which AIC said offered income hunters a dream ticket – a yield (annual income) in excess of five per cent and a dividend record devoid of cuts for the past decade.

It’s a record that manager Iain Pyle is mighty proud of. Indeed, it goes back to 2010.

He says: ‘Shires Income is a trust that in terms of income stands up against cash, bonds and other income-oriented funds. It offers a high yield [around 5.7 per cent], a safe dividend stream with the opportunity for growth and a bit of capital gain on top.’

Although classified as a UK equity income trust, it has a few characteristics which stand it apart from rival funds.

For a start, while more than 80 per cent is invested in equities, it also has a portfolio of bonds with high coupons – the stated annual interest paid when a bond is launched.

Pyle says: ‘The bonds are good differentiators, providing a stable level of income north of 7 per cent. Yes, their capital values fall and rise but the income keeps pouring into the trust.

‘They’re defensive and add to the trust’s income appeal.’

Among the biggest bond holdings are those issued by bank Santander (coupon of 10.375 per cent) and building society Nationwide (10.25 per cent).

On the equity side, most are UK-listed, although the trust can invest overseas. As a result it has stakes in Dutch semiconductor giant ASML and Italian banking group Intesa Sanpaolo.

Pyle says quality counts when deciding which UK companies to hold. They must have strong balance sheets and an ability to deliver a satisfactory return on capital.

But given the trust’s income bent, there is a bit of a trade-off.

Pyle adds: ‘What we’re looking for are quality companies which the wider stock market has yet to fully appreciate.’

For example, the trust bought into construction giant Morgan Sindall in the wake of the financial scandal at rival Carillion.

Pyle says: ‘It now has a strong market position, a rebooted balance sheet and dividend payments which have jumped from 61p per share in 2020 to £1.31 last year.’

The trust’s overall performance numbers are solid.

Over the past year it has generated a return of 16.1 per cent compared to 12.2 per cent for the average of its UK-equity income peer group. But over the past five years, respective returns are 74.7 and 78.9 per cent.

Pyle says there are plenty of ‘concerns’ currently overhanging the UK economy, describing the changes to employer National Insurance contributions as a ‘policy mistake’.

For the time being, equities, says Pyle, will be buffeted by US tariffs introduced by Donald Trump.

But he also believes that there is room for some optimism in the UK as – and when – interest rates are cut.

Annual trust charges total 1.1 per cent and its market ticker and identification code are SHRS and 0805250 respectively.