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10-year performance anniversary

The Diverse Income Trust 29 April 2021 Update
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The Diverse Income Trust

10-year performance anniversary

Investment trusts
UK multi-cap equity income

29 April 2021

Price

118.0p

Market cap

£423.7m

AUM

£410.1m

NAV*

114.5p

Premium to NAV

3.1%

NAV**

116.1p

Premium to NAV

1.6%

Excluding income. **Including income. As at 27 April 2021.

Yield

3.1%

Ordinary shares in issue

358.0m

Code

DIVI

Primary exchange

LSE

AIC sector

UK Equity Income

52-week high/low*

118.0p

76.8p

116.3p

84.0p

*A-shares. **Including income.

Gearing

Gearing at 31 March 2021

0.0%

Fund objective

The Diverse Income Trust’s objective is to provide an attractive and growing level of dividends, coupled with capital growth over the longer term. It invests in a diversified portfolio primarily of quoted or traded UK companies across the market-cap spectrum, with a bias to high-quality small- and mid-cap stocks. As a stock-specific portfolio, the team does not use a benchmark.

Bull points

Multi-cap strategy helps to diversify away from dividend concentration risk.

Consistent growth in regular dividends since the trust’s launch in April 2011.

Revenue reserves can be used to help maintain the pattern of dividend growth.

Bear points

The UK market could remain out of favour and retain the valuation gap with developed markets.

A multi-cap strategy is not a clear-cut asset class to fit into an investor’s portfolio.

A labour intensive, active multi-cap mandate results in a relatively high management fee.

Analysts

Victoria Chernykh

+44(0)20 3077 5700

Sarah Godfrey

+44(0)20 3077 5700

The Diverse Income Trust is a research client of Edison Investment Research Limited

The Diverse Income Trust (DIVI) topped the ranking of UK high dividend yield closed end funds at its 10-year performance anniversary on par with one peer by NAV total return (TR). This multi-cap trust is little correlated with UK equity indices but reflects the UK market’s performance trend. The managers Williams and Turner believe income shares, or what they call ‘short-duration’ shares, will outperform growth equities during the continuing UK and global recovery from the pandemic.

DIVI’s dividend record since launch

Source: Bloomberg, Edison Investment Research

Key takeaways from 10-year track record

Exhibit 1 shows DIVI’s performance, dividend growth rate and other key metrics relative to 11 UK income peers.

DIVI has performed strongly since launch 10 years ago (28 April 2011) and continues to outperform the indices and peers. The trust is ranked in the top quartile over all the periods shown, including one, three, five and 10 years.

DIVI’s dividend CAGR (cumulative annualised growth rate) tops the peers’ rates at 18.5%, with the peer group average of 5.5%.

The trust has continued to deliver an attractive dividend income throughout the pandemic (see the chart above). The managers only buy shares that generate a substantial cash pay back. New holdings with high dividend and growth potential constantly refresh the portfolio.

Revenue reserves stood at £14.4m (4.0p per share, c 1x annual dividend payment) at the end of H121 (to end November 2020).

The board intends to at least maintain the FY21 ordinary dividend at the FY20 level (3.70p per share, up 1.4% on FY19). While c 16% of revenue reserves were used in FY20, in order to smooth dividend payments to shareholders in the wake of the pandemic (revenue per share fell 17% over the 12 months to end May), the board did not need to make further use of reserves for H121 dividends, despite an 11% fall in the trust’s revenue. Revenue earnings of 1.77p per share fully covered the two dividends in respect of the H121 period (1.75p per share). The board expects revenue to recover in coming years.

Trading at a small premium

DIVI currently trades at a 1.6% cum-fair premium, close to NAV, in line with the board’s stated key performance indicators. The trust has issued shares in the past two weeks.

Peer group

Exhibit 1: Selected peer group at 28 April 2021 based on cum-fair NAV

% unless stated

Market cap £m

NAV TR
1 yr

NAV TR
3 yr

NAV TR
5 yr

NAV TR 10 yr

Discount

ONC*

Gearing

Div Cover

Div CAGR 2011-20

Div yield (%)**

Diverse Income Trust

423.7

40.7

25.9

53.4

232.9

1.6

1.1

100

1.2

18.5%

3.1

AS Eq Inc Trust

172.5

33.8

(7.4)

12.5

78.1

(6.5)

0.9

106

0.9

5.8%

5.8

BMO Cap & Income

344.9

34.8

11.7

50.4

110.0

(1.5)

0.6

107

0.9

3.2%

3.6

City of London

1,735.0

20.9

5.1

27.3

101.5

2.8

0.4

107

0.5

4.0%

4.8

Dunedin Inc Growth

459.3

25.0

28.2

61.1

107.0

(3.0)

0.6

105

1.4

2.4%

4.1

Edinburgh IT

1,089.9

32.7

(0.1)

14.8

115.1

(3.3)

0.6

101

2.0

2.7%

3.8

Finsbury Gr & Inc

2,028.9

17.0

25.0

68.4

233.0

0.5

0.6

117

1.2

6.8%

1.8

JPMorgan Claver.

421.2

38.5

9.3

45.0

107.2

(1.9)

0.7

113

1.0

2.9%

4.3

Lowland

356.6

44.1

(1.5)

26.6

112.1

(5.7)

0.6

113

1.3

6.1%

4.5

Merchants Trust

629.1

41.8

12.3

47.8

107.1

1.2

0.6

109

0.7

11.6%

5.3

Murray Income Trust

1,044.1

21.8

23.7

54.8

108.5

(2.6)

0.6

108

1.0

2.0%

3.9

Temple Bar

755.7

52.1

(1.2)

24.9

86.1

(5.1)

0.5

106

0.5

2.9%

3.4

Simple av. 12 funds

788.4

33.3

9.3

37.2

110.6

(2.0)

0.7

107

1.0

5.5%

4.0

Rank in peer group

8

4

2

4

2

2

1

5

1

12

Source: Morningstar, Edison Investment Research. Note: TR = total return. Gearing (net) is total assets less cash and equivalents as a percentage of net assets. 100=ungeared. *ONC=ongoing charge ratio. **Based on historic dividends.

Dividend policy

DIVI’s primary objective is to provide shareholders with an attractive and growing level of income, as well as deliver capital growth over the long run. The board has a policy to build revenue reserves during the years of generous dividend payments from portfolio companies and uses them as necessary when dividend payments from portfolio companies subside, as happened during the COVID-19 pandemic.

General disclaimer and copyright

This report has been commissioned by The Diverse Income Trust and prepared and issued by Edison, in consideration of a fee payable by The Diverse Income Trust. Edison Investment Research standard fees are £19,502 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by The Diverse Income Trust and prepared and issued by Edison, in consideration of a fee payable by The Diverse Income Trust. Edison Investment Research standard fees are £19,502 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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