Equity income tops investment trust wish list

Equity income funds were the most-viewed group of investment trusts listed on the Association of Investment Companies (AIC) website in the first quarter of this year, with the UK leading its global counterparts, according to the AIC.Of the top 20 most-viewed trusts, five were UK equity income funds. At number three was star manager Nick Train's Finsbury Growth & Income Trust, currently yielding 2.1%, while City of London Investment Trust, which has a yield of 3.9%, followed closely in fourth place.Murray International, a global equity income fund with a yield of 4%, attracted the most views while Scottish Mortgage, a global fund yielding 1.4% came second, both funds retaining first and second place in the first quarter for the second year running.

"Demand for income"

Finsbury Growth & Income, Murray International and Scottish Mortgage are all Money Observer Rated Funds.

Scottish Mortgage appears in both Money Observer Growing Income model portfolios: the medium risk version has returned 45.1% and the higher risk option 56.6% since inception in January 2012. The AIC, which claims that the amount of views investment trusts receive on its website is "a good reflection" of investor interest and sentiment, said that the results clearly showed investors' current "demand for income".

It added that many of the most viewed funds were "dividend heroes", or investment companies with the longest consecutive dividend track records. These include City of London, Foreign & Colonial and Witan, all of which have increased dividends for 47 years, 43 years and 39 years respectively.Despite the preference expressed for UK equity income funds by AIC web users, data from investment trust research group Winterflood Securities shows that the global equity income sector is yielding slightly more; 3.8% compared to 3.5% from the UK. However, according to Dan Roberts, manager of Fidelity Global Dividend and Fidelity Global Enhanced Income funds, consistent dividend payouts are historically characteristic of UK companies, which could help to explain their prevalence amongst income favourites. "The UK arguably has the healthiest [global] dividend culture. By this, we mean companies pay a healthy proportion of their annual earnings in the form of dividends and there's a strong commitment to a progressive policy, i.e. ongoing dividend growth," Roberts says.In contrast, Roberts says the payout ratio of US firms is much lower as American companies generally prefer to buy back shares when profits are healthy and share prices are high.However, he adds that a low payout ratio means that the dividend itself is more secure, leaving potential for firms to grow their dividends ahead of earnings for a period of time, which he predicts will happen in both the US and Japan in the coming year.