Positioned to navigate more difficult conditions

The Diverse Income Trust 11 February 2016 Update

The Diverse Income Trust

Positioned to navigate more difficult conditions

Investment trusts

 

11 February 2016

Price

88.5p

Market cap

£339.4m

AUM

£335.2m

NAV*

87.0p

Premium to NAV

1.7%

NAV**

88.0p

Premium to NAV

0.6%

*Excluding income. **Including income. Data at 9 February 2016.

Yield

2.8%*

*Pro rata yield based on new quarterly payment calendar. Five dividends were paid in FY15.

Ordinary shares in issue

383.5m

Code

DIVI

Primary exchange

LSE

AIC sector

UK Equity Income

Share price/discount performance

Three-year cumulative perf. graph

52-week high/low

96.5p

78.5p

92.8p

81.5p

**Including income.

Gearing

Gross*

1.3%

Net*

1.3%

*As at 31 December 2015.

Analysts

Sarah Godfrey

+44 (0)20 3681 2519

Andrew Mitchell

+44 (0)20 3681 2500

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

The Diverse Income Trust (DIVI) is a UK equity income fund that is differentiated by investing across the market capitalisation spectrum. At 31 December 2015 around one-third was invested in the largest 350 UK stocks with the balance in smaller quoted stocks. Since launch in 2011 it has grown substantially, and has outperformed both the broad UK market and the high-yielding large- and mid-cap sector in total return terms in three of the last four years. It has also outperformed the majority of its sector since launch. A further element of differentiation comes through a FTSE 100 put option. This runs through to March 2017 with a strike level of 6,000, and also provides an element of downside protection covering around one-third of the portfolio.

12 months ending

Share price (%)

NAV (%)

FTSE All- Share (%)

FTSE 350 HY (%)

FTSE Small- cap (%)

31/01/12

--

--

(0.3)

3.5

(9.9)

31/01/13

39.2

28.9

16.3

16.4

33.6

31/01/14

38.0

43.3

10.1

9.7

40.3

31/01/15

(2.7)

1.5

7.1

6.1

(5.1)

31/01/16

21.3

14.3

(4.6)

(9.1)

5.8

Source: Thomson Datastream. Note: Total return basis.

Investment strategy: Undervalued growth and income

DIVI’s managers, Gervais Williams and Martin Turner at Miton Asset Management, meet 50-80 companies a month in their search for well-financed, growing firms with strong management and sustainable margins, attractive yields and dividend growth. They undertake rigorous financial analysis and aim to identify situations where share prices materially undervalue a company’s growth prospects. The strategy is multi-cap with a tilt towards smaller companies; currently two-thirds of the portfolio is held in stocks outside the UK’s largest 350.

Market outlook: Look past recent volatility

In January all segments of the UK stock market declined in value, although small- and mid-caps and AIM stocks have all outperformed the FTSE 100 index over one year. The outlook for smaller stocks – which are more domestically focused and less troubled by falling energy and material prices – is arguably more robust than for some of the multinationals in the oil- and mining-heavy blue-chip index, and dividends at the smaller end could hold up better in 2016 (as they did in the second half of 2015, providing a boost for DIVI), adding an important source of total return.

Valuation: At a smaller than average premium

At 9 February DIVI’s shares traded at a 0.6% premium to cum-income NAV. On average the trust has traded at a premium since launch, although it has moved to a discount on isolated occasions when the markets have been very unsettled, or when asset allocators have been reducing UK exposure. The current premium is smaller than the averages over one and three years and since launch (0.8%, 2.2% and 2.1% respectively.

Exhibit 1: Trust at a glance

Investment objective and fund background

Recent developments

DIVI’s objective is to provide an attractive and growing level of dividends, coupled with some capital growth over the longer term. It invests in a diversified portfolio primarily of quoted or traded UK companies, with a bias to small- and mid-cap stocks. It may also invest in FTSE 100 companies where the manager believes this will increase shareholder value. As a stock-specific portfolio, there is no benchmark, but DIVI targets income growth higher than other income funds.

1 February 2016: Half-yearly report for the six months ended 30 November 2015. NAV (capital only) +6.4% compared with -8.0% for FTSE All-Share.

15 October 2015: First quarterly interim dividend of 0.65p per share declared for the year ending 31 May 2016.

18 August 2015: Annual results for the year ended 31 May 2015. NAV TR +8.9% compared with +7.5% for FTSE All Share index. Dividends up 6.7% on FY14.

Forthcoming

Capital structure

Fund details

AGM

October 2016

Ongoing charges

1.18%

Group

Miton Group

Annual results

August 2016

Net gearing

1.3%

Managers

Gervais Williams, Martin Turner

Year end

31 May

Annual mgmt fee

1.0% of market cap (0.8% above £300m)

Address

6th floor, Paternoster House, 65 St Paul’s Churchyard, London, EC4M 8AB

Dividend paid

Quarterly

Performance fee

None

Launch date

28 April 2011

Trust life

Indefinite

Phone

+44 (0) 20 3714 1501

Continuation vote

No

Loan facilities

See page 7

Website

www.mitongroup.com

Dividend policy and history

Share buyback policy and history

Quarterly dividends are paid in February, May, August and November. DIVI distributes substantially all of its income, net of costs, annually. Note: owing to a timing change to enable investors to vote on a final dividend, there were five dividends paid in FY15. Four dividends will be paid going forward – see p7.

Renewed annually, DIVI has authority to purchase up to 14.99% and allot up to 10% of issued share capital. Subject to directors’ discretion, DIVI offers investors an annual facility to redeem all or part of their shareholding at NAV minus costs.

Shareholder base (as at 1 December 2015)

Distribution of portfolio (as at 31 December 2015, net of gearing)

Top 10 equity holdings (at 31 December)

Portfolio weight %

Company

Index

Sector

31 December 2015

30 June 2015*

Charles Taylor

FTSE Small Cap

Insurance services

2.2

2

Burford Capital

FTSE AIM

Equity investment instruments

1.8

1.6

International Greetings

FTSE AIM

Consumer goods

1.8

1.3**

Safestyle UK

FTSE AIM

Construction & materials

1.6

1.7

Novae

FTSE Small Cap

Non-life insurance

1.6

1.4

Powerflute

FTSE AIM

Forestry & paper

1.5

1.8

Fairpoint Group

FTSE AIM

Financial services

1.5

1.5

Direct Line Insurance

FTSE 100

Non-life insurance

1.5

1.4**

Beazley

FTSE 250

Insurance services

1.4

N/A

4Imprint Group

FTSE Small Cap

Consumer services (media)

1.4

1.3**

Top 10 (% of portfolio)

16.3

15.8

Source: The Diverse Income Trust, Edison Investment Research, Morningstar, Bloomberg. Note: *N/A where not in June 2015 top 20. **These holdings were in the top 20 but outside the top 10 at 30 June.

Market outlook: Dividends are key to total returns

After reaching a high of 7,103.98 in April 2015, the FTSE 100 index of leading UK shares has experienced significant declines, posting a negative total return of 6.5% for the 12 months to 31 January and a fall of 17.8% in points terms from its peak to the close on 3 February. The FTSE All-Share (about 80% of which is represented by the 100 largest companies) is also in negative territory over one year, but mid- and small-cap stocks have performed better, with the FTSE 250 and FTSE Small Cap producing total returns of 4.5% and 5.8% respectively over 12 months.

In volatile market conditions, dividends can make the difference between a negative and a positive total return. According to the Capita UK Dividend Monitor – a quarterly study of dividends from the largest 350 UK companies – UK dividends grew by 6.8% in 2015, excluding special dividends. However, the outlook is clouded by a supermarket price war eating into profits, and the effect of falling oil and commodity prices. While oil majors have maintained their payouts by cutting costs, Capita expects mining dividends to come under significant pressure in 2016, and forecasts a decline in underlying dividends for the UK in 2016 for the first time since 2010.

Dividends from mid-cap companies grew by much more than those of the largest companies in 2015, up 22.6% (15.3% excluding specials). Companies outside the largest 100 tend to be more exposed to the domestic economy, and this holds true for small- as well as mid-caps, suggesting the outlook for smaller-company dividends in 2016 may be rosier than for the market as a whole.

Fund profile: All-cap income fund with small-cap slant

DIVI was launched in April 2011 to invest in UK companies across the market capitalisation spectrum, with the aim of achieving an attractive and growing income as well as capital growth. It is managed by Gervais Williams and Martin Turner at Miton Asset Management, a boutique fund manager of which Williams is also managing director. Both Williams and Turner are smaller-company specialists, and the majority of the DIVI portfolio is invested outside the large- and mid-cap FTSE 350, including in AIM and ISDX-listed stocks.

The managers also run an equivalent open-ended fund, Miton UK Multi Cap Income, as well as two less income-focused UK small-cap funds, the open-ended Miton UK Smaller Companies and the closed-ended Miton UK MicroCap trust. Demand has been strong for the multi-cap income strategy, with the OEIC reaching £585m of assets under management and DIVI having grown from £50m at launch to c £350m in less than five years, through a combination of performance, share issuance and a merger with the Miton Income Opportunities (formerly Henderson Fledgling) investment trust in 2013. The closed-end structure benefits DIVI as its permanent capital makes it better suited to holding very small companies, which may be illiquid, and it can also make use of gearing. In practice this has tended to be modest, and stood at 1.3% net at 31 December.

The fund managers: Gervais Williams and Martin Turner
The managers’ view: Diversification is key

DIVI’s managers have long held the view that the credit-fuelled asset boom that was only briefly interrupted by the global financial crisis has effectively led to growth being ‘borrowed’ from the future. This means larger companies in particular will find it harder to grow, and suggests that diversification away from blue-chip stocks will lead to greater rewards for investors.

Recent market volatility has underlined concerns about world economic growth and in particular a deceleration in China, where Williams sees the current direction of monetary policy as a potentially serious error that could cause China’s currency to suffer similar falls to that of Brazil. This more uncertain outlook, coupled with the impact of commodity price falls on many large companies in the energy and materials sectors, could put pressure on dividends. The level of dividend cover has declined to c 1.5x for the FTSE All-Share index (at 2 February). DIVI’s dividend cover is c 2x, implying a dividend yield of c 4.5% on the portfolio given a median P/E ratio of 12-13x.

Williams points to a change in mood in the market, with the first interest rate rise in the US leading to an end of the ‘bad news is good news’ period, where investors saw any poor economic news as positive because it pointed to a continuation of ultra-low rates. By maintaining a focus on companies with growing cash flows and modest debt or net cash, and by ensuring the stock list is diversified by size and sector, the managers feel the DIVI portfolio is well equipped to weather such a period of negative sentiment. They also continue to hold downside protection in the form of a FTSE 100 put option (see below).

The FTSE 100 put option

In December 2013 DIVI’s managers purchased a put option on the FTSE 100 index, which offsets risk for around one-third of the portfolio. Initially the option had a strike level of 5,800 and an expiry date of June 2015. In early 2015 as the blue-chip index neared all-time highs, the managers took advantage and extended the expiry date to June 2016, and did so again in early summer after the Greek debt deal caused a wave of investor optimism, with a new strike level of 6,000 and a March 2017 expiry. The cost of the option is c 0.06% of NAV per month.

In recent weeks the FTSE 100 has traded below this level, meaning the option is ‘in the money’, but Williams argues that it is right to keep the protection in place, comparing it with a car insurance policy that will only allow a single claim. While they could sell the option now, the managers are sufficiently cautious on the outlook for markets to hold on in case of a further, sharper market reversal, when selling the option would allow them to buy income-generating stocks at more attractive valuations than today. Should such a reversal not occur, DIVI will benefit from rising markets instead.

Asset allocation
Investment process: Fundamental, research-driven approach

DIVI selects investments from a broad universe of c 1,600 companies across the whole UK stock market. The managers meet between 50 and 80 companies each month, and are broadly seeking stocks – regardless of size – that are paying attractive dividends that have the capacity to grow. (A new trust, Miton UK MicroCap, is more focused on higher-growth areas that do not yet offer compelling yields.) Williams notes that the decreasing research coverage of smaller companies (many small stocks are now only covered by their house broker) means there are more chances for a fund manager to spot under-appreciated opportunities. Candidates for inclusion in the portfolio of 100+ stocks are subjected to rigorous financial analysis, and the managers use a traffic light system (red or green) to assess companies based on five key questions:

Are there prospects for rising turnover?

Can corporate margins be sustained?

Is the management team good enough?

How much financial headroom is there in the balance sheet?

Does the share price reflect low expectations?

The managers view companies with good and growing turnover, sustained or improving margins and little or no debt as those with the best risk/reward prospects. Any deterioration in these measures will result in the reassessment of holdings and could lead to stocks being sold.

Williams points to the multi-cap strategy as an important source of differentiation. While there might be 150 smaller stocks with attractive yields and prospects of dividend growth, of which 70 or 80 might make it into the DIVI portfolio, the ability to select from the 350 large- and mid-cap UK stocks as well gives the trust flexibility and means its portfolio has tended to have limited correlation with either mainstream equity income peers or pure small-cap funds.

Current portfolio positioning

At 31 December 2015 DIVI had 137 holdings in total, similar to the number six months previously but well ahead of the c 60-stock average for UK Equity Income peers. The length of the stock list is largely a function of DIVI’s focus on smaller companies (two-thirds of the portfolio is invested outside the FTSE 350). Williams explains that in the smallest companies it is not always possible to build a significant stake, owing to liquidity issues as well as the need to avoid overexposure; at the 30 November half-year 100 of the 137 holdings were positions of 1% or less. However, in an environment where growth is becoming more uncertain, the managers point out that there will be fewer companies that are able to continue to grow their earnings and margins, and a deterioration in market conditions would be likely to result in a shorter stock list.

In sector terms the portfolio is most heavily exposed to consumer services, industrials and financial services. Relative to the FTSE All-Share index the largest overweights are industrials, consumer services, insurance and technology. The biggest underweights are financial services, healthcare, oil & gas and consumer goods, which together make up 56% of the index but only 25% of the portfolio.

Exhibit 2: Portfolio sector exposure vs FTSE All-Share (% unless stated)

Portfolio end Nov 2015

Portfolio end Nov 2014

Change (% pts)

Index weight

Active weight vs index(% pts)

Trust weight/ index weight (x)

Industrials

20.0

19.7

0.3

10.3

9.7

1.9

Consumer services

20.6

17.5

3.1

12.5

8.1

1.6

Insurance services

13.7

11.9

1.8

6.2

7.5

2.2

Technology

5.3

6.4

-1.1

1.7

3.6

3.1

Basic materials

5.5

4.7

0.8

4.4

1.1

1.2

Telecommunications

4.7

5.9

-1.2

5.4

-0.7

0.9

Utilities

0.8

0.8

0.0

3.7

-2.9

0.2

Financial services

14.5

16.6

-2.1

20.0

-5.5

0.7

Healthcare

1.6

4.7

-3.1

8.5

-6.9

0.2

Oil & gas

2.0

1.2

0.8

10.8

-8.8

0.2

Consumer goods

6.9

4.3

2.6

16.4

-9.5

0.4

Cash/fixed interest/other

4.4

6.3

-1.9

0.0

4.4

N/A

100.0

100.0

100.0

Source: The Diverse Income Trust, Edison Investment Research, FTSE Russell. Note: Ranked by active weight, excluding cash/other.

Recent changes include a fall in the insurance weighting following the takeovers of BRIT and Catlin; some of the proceeds have been reinvested in Phoenix Group but profits have been taken in Direct Line, which has performed well. The healthcare weighting is very small at 1.6% following the sale of holdings in GlaxoSmithKline and AstraZeneca, although the FTSE 100 weighting has risen over the past six months (from 10.3% to 15.4%), boosted by the purchases of easyJet and Taylor Wimpey. The blue-chip index has been the main source of turnover in the volatile markets of recent months.

The managers note a low level of IPO activity in 2015, with the run-up to the general election in the early part of the year and volatility from the summer onwards dampening appetite for flotations. One exception was low-cost accommodation booker Hostelworld, bought at IPO in October 2015 and now just outside the top 20 holdings. Outside the insurance sector M&A in the portfolio has also been subdued; the managers say many of the takeover premiums they have observed in the wider market are too low in the context of companies’ future growth potential, and they are engaging with holdings to discourage management from entertaining low-value bids.

Performance: Outperforming all benchmarks

Exhibit 3: Investment trust performance to 31 January 2016

Price, NAV and benchmark total return performance, one-year rebased

Price, NAV and benchmark total return performance (%)

Source: Thomson Datastream, Edison Investment Research. Note: Three years and since inception (SI, 28 April 2011) performance figures annualised.

Exhibit 4: Share price and NAV total return performance, relative to indices (%)

 

One month

Three months

Six months

One year

Three years

Since inception

Price relative to FTSE All Share

0.5

3.0

12.0

27.1

44.8

69.8

NAV relative to FTSE All Share

0.7

2.5

10.7

19.9

47.9

69.6

Price relative to FTSE 350 High Yield

(1.4)

2.3

12.5

33.3

53.8

73.7

NAV relative to FTSE 350 High Yield

(1.1)

1.9

11.2

25.8

57.1

73.5

Price relative to FTSE Small Cap

3.3

4.1

10.4

14.6

15.6

26.8

NAV relative to FTSE Small Cap

3.5

3.7

9.1

8.1

18.1

26.7

Price relative to UK IT Equity Income

1.6

1.8

7.7

18.5

21.2

28.2

NAV relative to UK IT Equity Income

0.5

0.7

5.9

11.6

17.7

26.7

Source: Thomson Datastream, Edison Investment Research. Note: Data to end-January 2015. Geometric calculation.

DIVI’s all-cap, income-focused strategy has seen it outperform the broader UK stock market in both share price and NAV terms over all periods since launch, and particularly so over one year (Exhibit 3). While share price total returns have exceeded NAV total returns over one year (left-hand chart), NAV performance has been less volatile than both the share price and the FTSE All-Share index. Williams points out that the correlation of the smallest UK companies with the FTSE 100 index is very low (c 20%), with the blue-chip index dominated by energy and materials, banks, pharmaceuticals and consumer goods, which together make up less than a quarter of the DIVI portfolio. The FTSE 100 is c 80% of the All-Share but only c 15% of the trust at 31 December. As shown in Exhibit 4, DIVI also has a strong track record over almost all periods relative to higher-yielding large- and mid-cap stocks (the main focus of most UK equity income peers), as well as smaller companies in general, and the UK equity income investment trust peer group.

Exhibit 5: NAV performance relative to FTSE All Share index over three years

Source: Thomson Datastream, Edison Investment Research

Discount: At an average premium since launch

DIVI has largely traded at a premium to NAV since launch, with a strong appetite for the strategy reflected in share issuance throughout its life (see Capital structure, below). At 9 February the shares traded at a 0.6% premium to cum-income NAV, which is below the averages of 0.8% over one year, 2.2% over three years and 2.1% since inception. A 12-month high of 5.0% was reached on 30 December 2015. Demand for the shares may be driven in part by capacity constraints for Miton’s multi-cap income strategy, leading to the soft-closure of the analogous open-ended fund.

Exhibit 6: Discount/premium over three years, including income

Source: Thomson Datastream, Edison Investment Research.

Capital structure and fees

DIVI is a conventional investment trust with 383.5m ordinary shares in issue. Having listed in April 2011 with 100m shares, it has grown significantly through C share issuance and a merger with Miton Income Opportunities Trust in 2013. DIVI operates an annual redemption facility whereby investors can redeem their shares at NAV minus costs on 31 May each year. Redemption requests must be made by 30 April and 2015 was the first year to see a net redemption under the facility, with 3.2m shares transferred to treasury. Miton Trust Managers is paid an annual management fee of 1.0% up to £300m market capitalisation, reducing to 0.8% above this. Fees and financing costs are charged 75% to capital and 25% to income. For the half-year ended 30 November DIVI’s ongoing charges were 1.18%. The trust has an overdraft facility and is permitted to gear up to 15% of NAV. At 31 December 2015 net gearing stood at 1.3%.

Dividend policy and record

DIVI aims to achieve a sustainable and growing income rather than a high current yield, and as a result is one of the lowest-yielding trusts in its peer group (see below). Dividends are paid quarterly and from the current financial year are planned to be broadly equal in size. Previously the fourth quarterly dividend had been larger than the first three. As a step towards this rebalancing, five dividends were paid in respect of FY15, with what would have been the first interim dividend of FY16 redesignated as a final dividend. From the current financial year dividends will be paid in February, May, August and November, allowing shareholders to approve the final dividend at the AGM in October. The total dividend for FY15 was 2.9p per share (2.5p if the new payment calendar had applied). So far in FY16 two dividends of 0.65p have been declared; if the remaining two are paid at the same level the total dividend for the year would be 2.6p. Dividends were fully covered by income in FY15 and for the first half of FY16, and in four years of existence DIVI has built revenue reserves equal to c 80% of the current year’s dividend.

Peer group comparison

DIVI is a member of the AIC UK Equity Income sector. Exhibit 7 shows the 12 largest funds in the peer group of 23. DIVI ranks first of the funds shown below for NAV total returns over one and three years, and second in the whole sector over both periods. In terms of risk-adjusted performance as measured by the Sharpe ratio, DIVI ranks first over both one and three years. Ongoing charges are somewhat above average, although unlike some peers, DIVI does not charge a performance fee. DIVI’s premium to NAV places it towards the top of the sector, while gearing is below average. The trust has the second-lowest yield in the sector, although this should be viewed in the context of the trust’s intention to prioritise sustainable dividend growth over a high dividend yield.

Exhibit 7: UK Equity Income investment trusts

% unless stated

Market cap £m

TR 1 year

TR 3 years

TR 5 years

Ongoing Charge

Perf. fee

(Discount)/premium

Net gearing

Yield

Sharpe 1y (NAV)

Sharpe 3y (NAV)

Diverse Income Trust

345.1

14.3

66.3

--

1.2

No

1.3

101.0

2.8

0.8

1.6

City of London

1,159.5

(1.1)

27.5

63.4

0.4

No

1.8

110.0

4.3

(0.4)

0.4

Dunedin Income Growth

317.1

(12.4)

5.6

31.5

0.6

No

(7.3)

111.0

5.4

(1.0)

(0.1)

Edinburgh Investment

1,314.9

5.8

50.3

98.9

0.6

No

(0.4)

115.0

3.6

0.1

0.9

F&C Capital & Income

230.3

1.1

17.4

39.7

0.7

No

0.3

110.0

4.2

(0.3)

0.2

Finsbury Growth & Income

723.2

4.0

49.5

107.0

0.8

No

(0.2)

104.0

2.1

(0.1)

0.9

JPMorgan Claverhouse

305.9

(1.6)

28.3

44.9

0.7

Yes

(4.5)

118.0

3.8

(0.4)

0.4

Lowland

325.6

(4.4)

21.7

65.7

0.6

Yes

0.1

118.0

3.2

(0.6)

0.3

Merchants Trust

431.9

(8.3)

11.9

36.8

0.6

No

(3.0)

124.0

6.0

(0.7)

0.1

Murray Income Trust

430.3

(7.0)

12.6

37.8

0.7

No

(6.6)

111.0

5.1

(0.7)

0.1

Perpetual Income & Growth

906.2

2.0

48.2

91.8

0.7

Yes

(2.3)

119.0

3.8

(0.2)

0.8

Temple Bar

650.0

(6.6)

14.1

46.8

0.5

No

(5.0)

106.0

4.8

(0.8)

0.1

Weighted average (23 fds)

0.2

33.7

66.8

0.7

(1.9)

112.3

4.0

(0.3)

0.5

DIVI rank in sector

8

2

2

N/A

6

3

19

22

1

1

Source: Morningstar, 3 February 2016 (performance to 31 January), Edison Investment Research. Note: TR=NAV total return. Table excludes trusts with less than £200m market cap. Sharpe ratio is a measure of risk-adjusted return. The ratios shown are calculated by Morningstar for the past 12- and 36-month periods by dividing a fund’s annualised excess returns over the risk-free rate by its annualised standard deviation. Net gearing is total assets less cash and equivalents as a percentage of net assets (100 = ungeared).

The board

DIVI has five directors. Chairman Michael Wrobel, senior independent director Jane Tufnell, Paul Craig and Lucinda Riches have all served on the board since the trust’s launch in April 2011. Tom Bartlam, the chairman of the audit committee, was appointed in October 2013. The directors have backgrounds in fund management, investment banking and corporate finance.

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by The Diverse Income Trust and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place,

88 Phillip Street, Sydney

NSW 2000, Australia

Wellington +64 (0)4 8948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place,

88 Phillip Street, Sydney

NSW 2000, Australia

Wellington +64 (0)4 8948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Share this with friends and colleagues