Capital distributions are a useful tool for investment trusts and their shareholders. They can allow the products to enhance yield without the need to alter their investment mandate, enabling those investing in growth-focused and low-yielding sectors, for example, to generate attractive distributions without changing their investment objective. As a mechanism to manage share price discounts, they can be more equitable – and arguably more effective – than share buybacks or tenders.
But these new powers need to be handled with care. Boards and their investment managers must conduct trust-specific assessments to assure shareholders that a capital distribution policy is the right and sustainable course of action and takes account of the tax position of current and prospective investors. They also need to be quick to take action if the risk of capital erosion rises.
Investment trusts have built a well-earned reputation as prudent dividend custodians. As the era of zero and negative real yields continues, the industry has an opportunity and a duty to reinforce this prudent reputation.
Richard Plaskett is an investment trust client director at JPMorgan Asset Management
Companies regularly paying dividends from profits
| Investment company | Sector |
| Aberdeen Private Equity | Private Equity |
| Baring Emerging Europe | European Emerging Markets |
| Better Capital 2009 | Private Equity |
| Better Capital 2012 | Private Equity |
| Dunedin Enterprise | Private Equity |
| Electra Private Equity | Private Equity |
| European Assets | European Smaller Companies |
| F&C Private Equity | Private Equity |
| International Biotechnology | Sector Specialist: Biotechnology & Healthcare |
| Invesco Perpetual UK Smaller Companies | UK Smaller Companies |
| JPMorgan Asian | Asia Pacific ex Japan |
| JPMorgan Global Growth & Income | Global Equity Income |
| Lazard World Trust Fund | Global |
| Personal Assets | Flexible Investment |
| RIT Capital Partners | Flexible Investment |
| Securities Trust of Scotland | Global Equity Income |
| Standard Life Private Equity | Private Equity |
| Utilico Emerging Markets | Global Emerging Markets |
| Source: AIC. Note: Table doesn’t include trusts that have amended their articles of association to allow them to distribute dividends from capital profits where they have never done or have no clear policy to do so in future, VCTs or companies that have paid dividends from capital profits in the past but do not do it on a regular basis. | |
