Published on September 9, 2026
The dependable portfolios of UK equity income investment trusts, filled with financial, energy and mining companies, look especially appealing in the aftermath of the July sell-off of AI stocks.
Trusts in this sector tend to have low exposure to the US, and there is a broad array for investors to choose from – some of which have performed remarkably well over the long term. Temple Bar (TMPL) and Law Debenture (LWDB) have comfortably beaten their FTSE All-Share benchmark over three, five and 10 years. Meanwhile, the venerable City of London (CTY) has raised dividends every year for almost 60 years, and the shares are up by more than a fifth in the past year.
However, this performance and income record tends to come with a price. The three trusts all trade very near their net asset value (NAV), or at a small premium.
Some trusts in the sector look remarkably cheap by comparison. Lowland (LWI) has one of the widest discounts at 8.5 per cent, despite the fact that it has been the second-best-performing trust on a share price basis over one and three years, helped by its value style.
It’s worth noting that Lowland and Law Debenture invest in a number of the same holdings, with 78 per cent of their portfolios overlapping according to Winterflood. This is perhaps to be expected given they are run by the same team at Janus Henderson. However, Law Debenture is unique because it generates a good chunk of its income from the independent professional services business it owns
Dunedin Income Growth (DIG), run by Aberdeen, also looks cheap on a 7.5 per cent discount, and offers the highest yield in the sector at 6 per cent (stripping out the tiny £35mn Chelverton UK Dividend (SDV)). This is inflated by an enhanced dividend policy that sees it pay out 6 per cent of its NAV, partly from capital when necessary.
These insights do not constitute advice and should not be relied upon by users in making any specific investment or other decisions.
A high yield can’t do all the heavy lifting, though. The trust has fallen well behind the FTSE All-Share over the past five years as its quality style has not delivered, so the discount may be more warranted in this case. As James Carthew, head of investment companies research at Quoted Data, notes, “There is a fairly strong correlation between trusts on wide discounts and those with poor returns over three to five years.”
One of the largest trusts in the sector, Edinburgh Investment Trust (EDIN), also has one of the biggest discounts, at 7.7 per cent. Like Dunedin, the trust has a quality tilt, which has caused it to underperform. It also has exposure to software and data stocks that are perceived to be threatened by agentic AI, with technology representing 12 per cent of its portfolio as at the end of August.
For the equity income trusts trading well below their NAV, a continued warming of sentiment towards UK equities could prove a boon. Emma Bird, head of investment trust research at Winterflood, says: “The investment trusts could benefit from this increased demand [for the asset class] in terms of a re-rating of their shares, providing a double whammy of strong NAV performance and discount tightening.”
Of course, when it comes to discounts, what goes down can come back up, but that doesn’t mean it always will. Positive sentiment towards the UK can only do so much: for the trusts whose strategy has struggled, an improvement in NAV performance will be crucial to narrow the discount.
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