How investment trusts can smooth your income journey

The facility to retain earnings can offer a buffer during leaner years.

15 November 2019

Brexit, interest rate cuts and a falling pound have made it a bumpy road for UK savers in recent years.

However, for me, a signifi cant part of the journey rests on choosing the right vehicle for the trip. And if you are investing for income, investment trusts may be able to provide a “smoother” income stream.

Investment trusts have the ability to retain earnings in the good years to bolster dividend payments in others.

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This could present shareholders with a volatile income stream – a “feast or famine” scenario that is trickier to predict.

This offers a real advantage over similar investments, such as the more common open-ended investment companies (OEICs), which must pay all the income they earn each year.

This could present shareholders with a volatile income stream – a “feast or famine” scenario that is trickier to predict.

By comparison, investment trusts can retain up to 15pc of their income each year as a reserve that can be held back for leaner years – such as the credit crunch in 2008 – or used to fund sustainable dividend growth.

It’s probably similar to the way we manage our own income and savings.

We could splurge everything we earn, but we often aim to have something put aside for unforeseen emergencies.

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Important information
Past performance is not a guide to future performance.

Income strategy charges are deducted from capital. Because of this, the level of income may be higher but the growth potential of the capital value of the investment may be reduced. The level of income is not guaranteed. Information correct at time of publication. This information is issued and approved by Martin Currie Investment Management Limited. The opinions contained in this article are those of the named manager. They may not necessarily represent the views of other Martin Currie managers, strategies or funds. Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.