Why consider DIVI?

DIVI is a unique proposition with an income and capital growth strategy spread across the market cap spectrum. Since launch in April 2011, DIVI has outperformed the UK market and all but one of its 17 peers in the AIC UK Equity Income sector. It also has a lifelong unbroken record of paying higher dividends each year, even through the global COVID pandemic. As the trust is diversified, it is less reliant on a limited number of companies to generate its income. Since launch, nearly half of DIVI’s total return has been from income.

The managers employ a consistent, fundamental investment process, which is particularly suited to seeking out attractive smaller-cap companies that are generally under-researched and can be mispriced. In FY25 (ending 31 May), the managers undertook 545 face-to-face company meetings. These offer greater opportunities than group meetings for the managers to ask probing questions to really understand businesses and industries.

Elevated investor risk aversion means that investment company discounts are wider than historical averages, but until Brexit, DIVI’s shares regularly traded at a premium. Hence, there is scope for the trust to be afforded a higher valuation if there is a change in sentiment towards UK income and smaller-cap companies.

DIVI: Unique multi-cap income fund

Williams explains that when DIVI was launched in April 2011, the strategy was to deliver something different; the result is a multi-cap portfolio invested across a broad range of sectors. The managers aim to generate good and growing total returns by investing in a wide range of high-quality cash-generative companies, which are expected to produce good and growing dividends.

DIVI has a strong long-term record of outperformance (all figures quoted are total returns). Since launch in April 2011, until the end of FY25, the trust’s adjusted NAV increased by 264.6% and its share price rose by 239.9%. These returns compare favourably with the Deutsche Numis All-Share Index (+140.1%) and the Deutsche Numis Smaller Companies plus AIM ex Investment Companies Index (+113.2%), which are used as comparator indices, and the AIC UK Equity Income peer group (+210.4%). This outperformance has been delivered with low volatility of returns, suggesting that the trust offers an attractive mix of high alpha and a below-average beta.

Current portfolio breakdown

At the end of August 2025, DIVI’s top 10 holdings made up 26.0% of the portfolio, which was a modestly higher concentration compared with 24.4% 12 months earlier. Six names were common to both periods.

Over the 12 months ending 31 August 2025, the number of portfolio holdings was reduced by 21 to 100. The manager explains that although UK company results in many cases have been robust, their share prices have not yet revalued, as they remain under pressure from negative outflows. Hence, the managers are holding onto DIVI’s positions for longer and the percentage of the portfolio made up of the largest holdings has been rising.

An ongoing feature, since the trust was launched, is its large allocation to financial stocks, which is a diverse area of the market offering a wide range of businesses in which to invest. Financials is one of the higher-yielding sectors and at the end of FY25 represented a 3.0pp higher share of income versus its portfolio weighting. Other differences of note are the higher yielding energy sector and the generally lower yields from materials, consumer discretionary and technology stocks.

Exhibit 5 clearly shows DIVI’s bias towards small-cap stocks. Compared with the Deutsche Numis All-Share Index, the trust has a near 60% underweight to the larger-cap mainstream stocks.

Portfolio activity

Since the beginning of 2024, DIVI’s weighting in the materials sector has increased meaningfully. This partly reflects the significant outperformance of the trust’s positions in gold miners including Pan African Resources and Thor Exploration, along with new holdings such as Greatland Gold (now named Greatland Resources). This company raised capital in 2024 to buy the majority stake of the Havieron Mine in Australia from the former owner Newcrest Mining, which was acquired by Newmont Corporation.

The managers have notably increased the trust’s allocation to UK banks, beyond the holdings in Lloyds Banking Group and Natwest Group, by adding other companies on more overlooked valuations such as OSB Group, Secure Trust Bank and Vanquis Banking Group. These new positions were largely funded using the proceeds from the takeovers of i3 Energy, Inspired Energy and STM Group (wealth management), along with taking profits in positions that had outperformed to become outsized holdings within the portfolio including Galliford Try and XPS Pensions.

This year, with major outperformance from both gold mining companies and UK banks, these sectors had become uncomfortably large parts of the portfolio. Therefore, in recent weeks the managers have locked in substantial profits by selling Greatland Resources and top slicing some gold and financial stocks, as well as selling Natwest Group. Much of the capital raised was reinvested in the utility sector, including a new holding in Pennon Group (water and wastewater services).

Williams’ perspectives on the investment backdrop

The manager comments that the general market view is that a higher level of uncertainty will lead to increased share price volatility. He highlights how stock markets have become distorted – in the 10 years ending 31 May 2025, global indices roughly tripled, whereas the ‘Mag 7’ large-cap technology stocks went up by more than 25 times. The strength in these names means that capital has been sucked out of other areas of the market, including small-cap stocks, which is a systemic risk if there is a change in sentiment away from those companies that have benefited greatly from the growth in AI.

Elevated valuations, particularly in the United States, bring the risk of multiple compression in a changing world where electorates are seeking new leadership and misallocation of capital has led to a lack of productivity improvements. An attitude of compromise during globalisation has been replaced by a ‘me first’ mentality during a period of nationalisation. Higher government budget deficits have contributed to an environment of ample liquidity, enabling zombie companies to survive, but tighter credit conditions mean these financially weak businesses are likely to disappear. Williams believes that this more equal playing field should make it easier for active managers to outperform their relevant benchmarks.

The manager notes that despite a general lack of appetite for UK small-cap stocks, over the last five years some smaller firms have performed very well. An example is portfolio company Galliford Try Holdings, which has seen multiple expansion from subnormal levels; when the position was purchased the company was valued at less than the net cash on its balance sheet. Because of depressed valuations such as these, Williams sees disproportionate upside in UK small-cap stocks. He explains that over the last 30 years, valuation improvement has been a major contributor to share price total returns, but over the long term, income has made up the lion’s share. The manager considers that during an economic downturn, there could be a reduction in share repurchases, which have previously supported earnings growth, particularly for larger companies. As DIVI focuses on a diverse group of businesses that can generate cash during tough economic conditions, it should be well positioned in an environment where income is expected to be a more important contributor to shareholder returns. The trust does hold some mainstream companies in the portfolio, but many of its holdings are not owned by the peer group.

Williams believes that if there is an economic downturn and zombie companies do disappear, this will provide significant opportunities for financially strong businesses that can make accretive acquisitions at very attractive prices. In 2023, HSBC was able to buy Silicon Valley Bank UK for a nominal sum of £1 following the collapse of its US parent. Further down the capitalisation spectrum, during the pandemic, K3 Capital acquired Quantuma and Randd, which were subsequently reported to be ‘transformational’ deals.

Looking at historical total returns from 1955 to 2023, the manager reports that the best-performing UK stocks were micro-caps and that, broadly, the return on a quoted stock was inversely proportional to its market capitalisation. He expects the UK to become the global leader in small-cap stocks, given the wealth of attractively valued, high-quality companies available, which bodes well for DIVI’s performance, while a greater focus on income versus capital growth by institutional investors would likely provide additional support.

Performance: FY25 added to long-term outperformance record

The AIC UK Equity Income sector is a relatively large 18-strong peer group. While DIVI has a differentiated multi-cap strategy, Exhibit 6 does provide some context. The trust’s NAV total return ranks second since DIVI was launched in April 2011. Its recent relatively strong returns mean the trust ranks fifth over the last 12 months, although its smaller-cap bias has provided a headwind over other periods shown. At 20 October 2025, DIVI’s discount was wider than the peer group average. It has a higher-than-average ongoing charges ratio, no gearing and a dividend yield that is modestly below the mean. Unlike some of its peers, DIVI’s diverse portfolio ensures it is not overly reliant on a few high-yielding companies for its income.

DIVI’s relative performance is shown in Exhibits 8 and 9. It is ahead of the Deutsche Numis All-Share Index over the last year. Perhaps a more relevant comparison, given the trust’s small-cap bias, is versus the Deutsche Numis Smaller Companies plus Aim ex Investment Companies Index. DIVI has outperformed over the last one, three, five and 10 years and since inception in April 2011. Over its lifetime, the trust has generated annualised NAV and share price total returns of +10.1% and +9.1% respectively, which are considerably higher than the index’s +5.8% annualised total returns.

In FY25, the trust delivered strong NAV and share price total returns of +12.8% and +20.8%, respectively. These were ahead of the comparator index’s (+9.7%) and peer group’s (+8.8%) total returns. DIVI’s largest performance contributors were: Pan African Resources (+1.86pp); Greatland Gold (+1.62pp); Galliford Try Holdings (+1.51pp); Concurrent Technologies (+1.49pp); and XPS Pensions Group (+1.49pp). The largest detractors were: Savannah Energy (-1.75pp); Zotefoams (-0.70pp); Conygar Investment Company (-0.64pp); CT Automotive Group (-0.57pp); and Man Group (-0.56pp).

Upside/downside capture analysis

Exhibit 11 shows DIVI’s upside/downside cumulative capture rates over the last 10 years versus the Deutsche Numis Smaller Companies plus AIM (excluding Investment Companies) Index. The trust’s defensive portfolio qualities are shown by capture rates of less than 100%. However, the upside capture of 76% and a downside capture of 63% imply that DIVI will appreciate more in a rising market than it will lose in a falling market.

Dividends: Higher payments every year since launch

In FY25, DIVI’s 4.87p revenue per share was a 12.0% increase year-on-year, which was considerably higher than UK CPI of 3.4% at 31 May 2025. The dividend per share rose by 5.9% to 4.50p, which was broadly in line with the compound annual growth since the trust was launched in 2011. It should be remembered that distributions have increased every year, even during the global pandemic.

To enable shareholders to vote on the FY15 dividend, a final dividend of 0.50p per share was paid in addition to four interim dividends. Since then, four payments have been made in respect of each financial year – three interim dividends and a final dividend.

In normal market conditions, DIVI has a fully covered dividend. There were two exceptions as a result of COVID-19 when the FY20 annual payment was 0.9x covered and there was a modest drawdown from revenue reserves in FY21. At the end of FY25, the trust’s revenue reserve was c £18.2m, which is around 1.9x the last annual dividend payment. Also, during FY25, following court approval, DIVI’s c £197.0m share premium account was transferred into a special reserve, which is distributable.

Valuation: Discount wider than historical averages

In a continuing uncertain world, investment trust discounts remain wider than historical averages. DIVI’s current 8.7% discount is towards the wider end of the three-year range of 1.6% to 10.9%. Over the last one, three, five and 10 years, the trust’s discount has averaged 6.5%, 6.5%, 5.0% and 3.4%, respectively.

DIVI offers shareholders the option to redeem their shares each year (at the board’s discretion). In 2025, this was moved from the end of May to the end of August to separate the redemption process from the preparation of the trust’s annual results. On 29 August 2025, c 72.8m shares (c 30.8% of the share base versus c 25.8% in FY24) were offered up.

As the redemption was sizeable, the board opted to create a redemption pool. DIVI’s assets and liabilities were divided into two pools: 1) the redemption pool consisting of cash, assets and liabilities attributable to the c 72.8m redemption shares; and 2) all the other cash, assets and liabilities attributable to the remaining shareholders. Once the pool is realised, the redemption price will be disclosed and the proceeds (minus costs, plus dividends and bank interest) disbursed.

Fund profile: Multi-cap income specialist

DIVI was launched on 28 April 2011 and is listed on the Main Market of the London Stock Exchange. Co-managers since launch, Gervais Williams and Martin Turner employ a multi-cap UK income and growth strategy seeking to deliver attractive returns by compounding good and growing dividends even in the absence of stock market appreciation. Williams is a renowned UK equity fund manager, whose passion for and experience of investing, along with his strong performance track record, make him an influential UK stock market opinion leader. He joined Miton Group in March 2011 and is currently head of equities at Premier Miton. Williams has been an equity fund manager since 1985. Turner joined Miton Group in May 2011, having qualified as a chartered accountant in 1992. The two managers have had a close working relationship since 2004 and bring complementary expertise to the partnership.

Williams and Turner have a bias towards investing in small- and mid-cap equities and the bottom-up stock selection approach means sector weights are a secondary consideration. The portfolio does not track a benchmark index; however, DIVI’s performance is measured against the Deutsche Numis All-Share Index and the Deutsche Numis Smaller Companies plus AIM ex Investment Companies Index. Portfolio risk is mitigated by having a wide range of holdings; most new positions make up less than 1.5% of the portfolio. At the time of acquisition, a single holding may not make up more than 15% of the fund. Derivatives can be used for efficient portfolio management, gearing and investment purposes. Uncovered short positions are not permitted. Unquoted companies are allowed, subject to prior board approval, up to 5% of the portfolio at the time of investment (none currently held). Gearing via bank facilities and derivative instruments is permitted up to 15% of NAV at the time of borrowing, although the trust is currently ungeared.

Investment process: Pure bottom-up stock selection

Williams and Turner select stocks following thorough fundamental research, seeking companies that generate sustainable cash flows to support growing dividend payments. Businesses paying the largest long-term dividend growth are often those that also deliver the best capital growth. The bias towards smaller firms, which are often under-researched, increases the managers’ opportunity to find mispriced securities. They use a traffic light system to assess companies based on five key questions:

1. Are there prospects for rising turnover?
2. Can corporate margins be sustained?
3. Is the management team good enough?
4. How much financial headroom is there in the balance sheet?
5. Does the share price reflect low expectations?

A deterioration in the grading of portfolio companies under any of these measures leads to a reassessment, and the holding could be sold.

DIVI is the only pure multi-cap fund within the AIC UK Equity Income sector. The trust’s managers are unconstrained by index considerations and have a very wide universe from which to source attractive opportunities. Many mainstream UK-quoted companies are relatively mature, so have surplus cash available to fund sustainable growing dividends. Some AIM-listed companies become dominant in their specific markets, enabling them to generate surplus cash and superior dividend growth. There are instances when a company’s long investment phase comes to an end, paving the way for substantial future cash flow and dividends. The managers also rotate out of companies that have appreciated significantly, resulting in a lower dividend yield. Proceeds are reinvested into companies that are attractively valued and have dividend growth potential.

DIVI’s approach to ESG

The board believes that integrating ESG into the investment process helps to achieve DIVI’s primary objective of delivering a good and growing level of dividend income. It supports the managers’ focus on helping UK-quoted companies address the climate change agenda and encouraging them to deliver demonstrably socially useful outcomes. Williams and Turner use a variety of ESG information sources, including companies’ reports and meetings with their management teams and boards, along with independent specialist ESG research and data, where available, to understand ESG-related risks and opportunities. There is generally more ESG information available for larger companies and, while smaller businesses may have less robust ESG policies and disclosures, this does not necessarily reflect higher ESG risks. When engaging with companies on ESG issues, Williams and Turner encourage discussion on a broad range of topics such as remuneration, safety records, the use of staff surveys, board composition, working conditions in the plants of overseas suppliers and approaches to climate change. The managers are unable to invest in companies that are involved in banned weapons.

Gearing

DIVI has not employed gearing since the fund was launched. The trust had a revolving loan facility with Royal Bank of Scotland, London branch between 4 October 2019 and 3 October 2023, but it was never drawn down.

Fees and charges

Effective from 1 June 2024, Premier Miton receives a fee of 0.8% per year on the trust’s average market cap up to £450m and 0.7% per year of average market cap above £450m (previously 0.9% per year of average market cap up to £300m, 0.8% per year of average market cap between £300m and £500m and 0.7% per year of average market cap above £500m).

The management fee is split 75%:25% between the trust’s capital and revenue accounts respectively. DIVI’s ongoing charges are higher than its peer group average. The board considers this is justified in the context of the trust’s specialist investment universe and the premium returns that DIVI has generated since launch. The FY25 ongoing charge ratio was 1.13%, which was 1bp lower than 1.14% in FY24.

Capital structure

DIVI is a conventional investment trust with one class of share – there are c 163.6m ordinary shares in issue. Over the last year, DIVI’s average daily trading volume was c 495k shares.

The board

Calum Thomson will stand down at the October 2026 AGM; the board will initiate a search for a new director in early 2026.