Diverse Income Trust (The) — Managers see relative upside in any environment

Diverse Income Trust (The) (LSE: DIVI)

Last close As at 20/04/2024

GBP0.87

0.30 (0.35%)

Market capitalisation

GBP277m

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Diverse Income Trust (The) — Managers see relative upside in any environment

Since launch in 2011, the Diverse Income Trust (DIVI) has grown its dividend every year (compounding at an average annual rate of 6.5%), including during the global pandemic, when many UK dividends were cut. The strength of the trust’s revenue growth is also reflected in its capital appreciation that has enabled DIVI to deliver robust total returns. As globalisation has fractured over the last three years, equity income strategies have become increasingly popular with global investors, and the UK top 100 index (in US dollar terms) has outperformed other developed market indices. DIVI’s two co-managers, Gervais Williams and Martin Turner, are very optimistic because they believe that UK large-cap stocks will continue to outperform and historically UK small-caps have outpaced the performance of their larger peers. In this scenario, the prospects for the trust’s multi-cap approach look very favourable.

Melanie Jenner

Written by

Mel Jenner

Director, Investment Trusts

Diverse Income Trust (The)_resized

Investment Companies

The Diverse Income Trust

Managers see relative upside in any environment

Investment trusts
UK multi-cap equity income

20 October 2023

Price

80.0p

Market cap

£255m

Total assets

£270m

NAV*

84.7p

Discount to NAV

5.6%

*Including income. At 18 October 2023.

Yield

5.1%

Ordinary shares in issue

318.5m

Code/ISIN

DIVI/GB00B65TLW28

Primary exchange

LSE

AIC sector

UK Equity Income

Financial year end

31 May

52-week high/low

96.5p

78.0p

99.6p

83.6p

*Including income.

Gearing

Gearing at 30 September 2023

0.0%

Fund objective

The Diverse Income Trust’s investment objective is to provide an attractive and growing level of dividends, coupled with capital growth over the long 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. The stock-specific approach means the trust’s portfolio does not track a benchmark index.

Bull points

DIVI’s multi-cap strategy avoids concentration risk on the largest UK companies.

Regular annual dividends have increased every year since the trust’s April 2011 launch.

Revenue reserves are equivalent to c 1.3x the last annual dividend payment.

Bear points

The UK has one of the lowest growth outlooks among the G7 nations, which may continue to hinder its appeal to global investors.

DIVI has experienced a period of underperformance as investors have gravitated towards large-cap UK dividend payers.

The trust’s intensive research process contributes to its above-average ongoing charge within the AIC UK Equity Income sector.

Analyst

Mel Jenner

+44(0)20 3077 5700

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

Since launch in 2011, the Diverse Income Trust (DIVI) has grown its dividend every year (compounding at an average annual rate of 6.5%), including during the global pandemic, when many UK dividends were cut. The strength of the trust’s revenue growth is also reflected in its capital appreciation that has enabled DIVI to deliver robust total returns. As globalisation has fractured over the last three years, equity income strategies have become increasingly popular with global investors, and the UK top 100 index (in US dollar terms) has outperformed other developed market indices. DIVI’s two co-managers, Gervais Williams and Martin Turner, are very optimistic because they believe that UK large-cap stocks will continue to outperform and historically UK small-caps have outpaced the performance of their larger peers. In this scenario, the prospects for the trust’s multi-cap approach look very favourable.

DIVI’s annual dividends (since FY18)

Source: DIVI, Edison Investment Research

The analyst’s view

DIVI does what it says on the tin. It has a broad income stream that is diversified by a large number of portfolio holdings (c 120 names), sector (exposure to all 11 areas) and market cap. The fund is broadly split as follows: large cap (20%); mid-cap (17%); small cap (55%); and other (8%, primarily cash). DIVI’s dividend stream tends to grow faster than those of its peers, which offers the prospect of superior long-term capital growth.

With its defensive characteristics, demonstrated by upside/downside analysis that is meaningfully below 100% in both rising and falling markets, the trust offers an interesting way to participate in the UK equity market. UK stocks have the potential to generate positive relative returns, given the low interest from global investors coupled with very attractive absolute and relative valuations. The probability of this outcome should increase meaningfully if there is a change in ISA rules requiring a fixed allocation to investment in UK-listed companies.

DIVI’s 5.6% share price discount to cum-income NAV could provide an interesting opportunity for new or existing investors. Although investment trusts are generally trading at wider discounts due to elevated investor risk aversion in an uncertain economic environment, it should be remembered that for much of its life the trust has traded close to par. An improvement in DIVI’s absolute and relative performance should also mean that the trust appears on more investors’ radar screens.

DIVI: Plenty of opportunities for UK small-cap stocks

According to DIVI’s managers, UK fund outflows have continued into 2023, having been a feature of the UK market over the past two years. This is despite mainstream UK equities having been the best performing developed equity market over the last two and three years in US dollar terms. However, this year international investors have modestly increased their allocations to global equity income stocks, including those of UK-listed businesses, which has supported the domestic stock market. Unfortunately, overseas investors do not have an appetite for AIM-listed equity income stocks, therefore UK fund outflows have continued to put pressure on this area of the market, as evidenced in year-to-date performance. The UK market is broadly flat, while the AIM index has declined by a further 18%.

Exhibit 1: AIM stocks have underperformed the UK market over the long term

Source: Refinitiv, Edison Investment Research

Rising interest rates tend to negatively affect economic activity, with a lag. Hence, if the US and UK employ a ‘higher for longer’ approach to monetary policy, the chance of a recession increases. In addition, elevated energy prices are adding to cost pressures for both corporates and consumers. This scenario is not reflected in the latest Bank of America Global Fund Managers survey, which suggests that investors are hopeful that central banks will cut interest rates, as 64% of respondents are expecting a ‘soft’ or ‘no’ economic landing. If this outcome proves to be correct, then there is potential for markets to broaden out and investors to move down the capitalisation spectrum.

Williams and Turner see significant opportunities in AIM-listed equity income stocks given the wide valuation gap between these and those of UK large-cap companies. In addition, they comment that the whole UK market looks very attractively valued in both absolute and relative terms. The managers believe that once UK stocks come back into favour, there is potential for a multi-year period of outperformance. They note that UK equities have proved relatively resilient this year during a period of rising government bond yields. Williams and Turner talk about the possibility of a UK stock market ‘supercycle’ as global investors increase their low-beta exposure, and UK fund outflows turn into inflows.

The managers believe that, given their significant underperformance over a multi-year period, AIM stocks should be the prime beneficiaries of a change in UK fund flows due to their very inexpensive valuations; even modest inflows of new cash could have a significant positive impact on small-cap share prices. Williams and Turner discuss the virtuous circle of thriving small businesses – creating local employment, increasing productivity and putting more money in voters’ pockets – while they also have more straightforward tax positions (less potential for avoidance). The benefits of a thriving small business economy are being debated with a proposal for part of annual ISA allowances to be ring-fenced for investment in UK-quoted companies. If this were to be approved, the managers consider it could be a ‘game changer’ for the performance of the UK stock market, including small caps; they point to the solid outperformance of AIM-listed income stocks following the global COVID-19 pandemic.

Williams and Turner highlight the long-term outperformance of UK small-cap stocks compared with the broad UK market. So if, as they believe, UK large-cap stocks continue to outperform their global peers, then UK small-cap stocks should outperform global markets, which, optimistically, they suggest could last 10 or 20 years. The managers believe that the combination of low valuations and low institutional ownership creates a very favourable environment for the outperformance of UK small-cap stocks. They acknowledge there is a slim chance that central banks could return to ultra-low interest rate policies, which could drive up the valuations of a broad range of asset classes, but if this were to happen AIM-listed income stocks should also benefit. DIVI is also well-positioned if there is a significant market pullback this year as its large-cap index put option, which expires in mid-December 2023, covers around half of the portfolio value.

DIVI’s upside/downside capture

Exhibit 2 shows DIVI’s upside/downside capture over the last 10 years versus the Numis Smaller Companies excluding Investment Companies Index. The fund’s portfolio return is defensive with an upside capture of 66% and a downside capture of 54%. This low volatility, coupled with the trust’s long-term outperformance implies that DIVI offers investors a fund with an attractive mix of high alpha and a below-average beta.

Exhibit 2: DIVI’s upside/downside capture

Source: Refinitiv, Edison Investment Research. Note: Cumulative upside (downside) capture calculated as the geometric average NAV total return (TR) of the fund during months with positive (negative) index total returns, divided by the geometric average index total return during these months. A 100% upside (downside) indicates that the fund’s TR was in line with the index’s during months with positive (negative) returns. Data points for the initial 12 months omitted in the exhibit due to limited number of observations used to calculate the cumulative upside/downside capture ratios.

A genuine multi-cap UK income fund

Exhibit 3: Portfolio capitalisation exposure

End-August 2023 (%)

End-August 2022 (%)

Change (pp)

AIM

31.0

39.6

(8.6)

Large cap

19.9

20.7

(0.8)

Mid cap

17.4

14.8

2.6

Small cap

20.3

18.5

1.8

UK listed non-index

2.8

1.6

1.2

Fledgling

0.8

0.5

0.3

Large-cap put option

0.1

1.0

(0.9)

Other

0.7

0.7

0.0

Cash

7.0

2.6

4.4

Total

100.0

100.0

Source: DIVI, Edison Investment Research

DIVI has diverse exposure across the market cap spectrum (Exhibit 3). An important benefit of a multi-cap approach is to identify overlooked companies at the lower end of the market cap spectrum. At the end of August 2023, large and mid-cap stocks made up 37.3% of the portfolio. The (-8.6pp) lower weighting in AIM stocks was primarily due to their poor performance.

DIVI’s differentiated sector exposure compared with the UK market

Exhibit 4 shows DIVI’s sector exposures, which have been rebased without cash. The largest differences versus the UK market’s sector exposures at 31 August 2023 were above-market weightings in financials (+11.3pp) and materials (+6.2pp), with a lower allocation to consumer staples stocks (-9.3pp). Since the trust’s inception in 2011, financials has always been DIVI’s largest sector; it is made up of a broad range of different businesses.

Exhibit 4: Portfolio sector exposure*

Exhibit 5: Broad UK market sector exposure

Source: DIVI, Edison Investment Research. Note: *Rebased without cash. Data at end-August 2023.

Exhibit 4: Portfolio sector exposure*

Exhibit 5: Broad UK market sector exposure

Source: DIVI, Edison Investment Research. Note: *Rebased without cash. Data at end-August 2023.

DIVI’s top 10 holdings

At end-August 2023, DIVI’s top 10 holdings made up 19.9% of the fund, which was broadly in line with 20.4% a year earlier; two positions were common to both periods. Over the period, the total number of holdings declined from 130 to 118.

Exhibit 6: Top 10 holdings (at 31 August 2023)

Company

Industry

Portfolio weight %

31 August 2023

31 August 2022*

Kenmare Resources

Basic materials

2.5

2.3

XPS Pensions Group

Financials

2.4

N/A

TP ICAP Group

Financials

2.2

N/A

i3 Energy

Energy

2.0

3.3

Galliford Try Holdings

Industrials

1.9

N/A

Paypoint

Industrials

1.9

N/A

Hostelworld Group

Consumer discretionary

1.8

N/A

Diversified Energy Company

Energy

1.8

N/A

Tesco

Consumer staples

1.7

N/A

Sabre Insurance Group

Financials

1.7

N/A

Top 10 (% of portfolio)

19.9

20.4

Source: DIVI, Edison Investment Research. Note: *N/A where not in end-August 2022 top 10.

UK large-cap index put option

DIVI has a large-cap index put option (c 0.1% of the portfolio) that currently extends to December 2023 and is significantly out of the money. While in a rising market the value of the put option tends to become worthless as it approaches its expiry date, in a market pullback the value of the put option rises, which helps to offset the price declines of other portfolio holdings. In the event of a market crash, the managers estimate that the put option covers half of the value of the portfolio.

Performance: Long-term outperformance

Data from the trust’s annual report show that since DIVI’s launch in April 2011 until end-FY23 (May), its NAV total return of +175.1% was significantly ahead of the Numis All-Share Index’s +89.4% and the Numis Small Cap plus AIM (excluding investment companies) Index’s 87.5% total return.

DIVI’s relative returns in Exhibit 8 show its long-term NAV outperformance versus Numis indices. Considering the trust’s more recent underperformance versus the broad UK market, DIVI has been particularly negatively affected by the wide divergence between large and small-cap stocks. As an example, in the last five years the AIM index fell by c 31% versus a rise of around 8% in the value of the UK largest 100 company index (at end-August 2023, more than 50% of the trust’s portfolio was made up of AIM and small-cap stocks).

Exhibit 7: Investment company performance to 30 September 2023

Performance and NAV total return, one-year rebased

Performance and NAV total return (%)

Source: Refinitiv, Edison Investment Research. Note: Three-, five- and 10-year performance figures annualised, on a total return basis in pounds sterling terms.

Year to date, stocks that have detracted from DIVI’s performance include Strix Group, which is a manufacturer of kettle safety controls and other components. Its cash flow came under pressure following a 2022 acquisition and the position was sold. CMC Markets and Vanquis also had disappointing trading statements but remain in the portfolio as these companies are generating strong cash flows and the managers expect their businesses will improve.

Stocks that have contributed positively to the trust’s performance this year include DWF Group and STM Group, both of which received takeover bids, while Galliford Try Holdings (construction company), XPS Pensions (employee beneficiary consultant) and Yü Group (supplier of energy and utility solutions) had positive trading updates.

Exhibit 8: Share price and NAV total return performance, relative to indices (%)

 

One month

Three months

Six months

One year

Three years

Five years

10 years

Price relative to Numis All-Share

0.9

2.9

(5.9)

(12.5)

(17.2)

(18.5)

(4.3)

NAV relative to Numis All-Share

(1.8)

(0.7)

(5.2)

(12.7)

(19.7)

(11.7)

3.0

Price relative to Numis Smaller Cos ex-ICs

4.0

4.5

(5.2)

(11.5)

(8.8)

(10.6)

(0.9)

NAV relative to Numis Smaller Cos ex-ICs

1.2

0.8

(4.5)

(11.7)

(11.6)

(3.1)

6.7

Price relative to CBOE UK All Cos

0.4

2.6

(6.2)

(13.5)

(21.6)

(20.9)

(7.6)

NAV relative to CBOE UK All Cos

(2.3)

(1.1)

(5.5)

(13.7)

(24.0)

(14.3)

(0.5)

Source: Refinitiv, Edison Investment Research. Note: Data to end-September 2023. Geometric calculation.

Exhibit 9: Five-year discrete performance data

12 months ending

Total share price return (%)

Total NAV return (%)

Numis All Share (%)

Numis Smaller Cos ex ICs (%)

CBOE UK All Cos (%)

30/09/19

(10.5)

(5.8)

1.7

(4.1)

2.7

30/09/20

(5.0)

0.9

(15.1)

(9.6)

(17.9)

30/09/21

43.3

34.6

27.9

45.9

28.5

30/09/22

(21.5)

(18.8)

(7.0)

(25.1)

(3.4)

30/09/23

(1.0)

(1.2)

13.1

11.8

14.5

Source: Refinitiv. Note: All % on a total return basis in pounds sterling.

Dividends: Progressive policy since 2011 launch

DIVI’s investment objective is to provide shareholders with an attractive and growing level of dividends coupled with capital growth over the long term. The trust’s revenue reserves have occasionally been used to supplement DIVI’s dividend payments in years when its income is reduced. Over the last five financial years the trust’s regular dividend has compounded at an annual rate of 3.6%, which compares to an estimated 5–7% per year in normal market conditions.

In FY23 (ending 31 May), DIVI’s revenue return per share was 4.05p, which is 2.5% higher than its pre-pandemic level. This contrasts with the broad UK market, whose income in May 2023 was 10% lower than in May 2019. The trust’s annual dividend of 4.05p per share (1.0x covered) was 3.8% higher than 3.90p per share in FY22. During FY23, DIVI’s revenue reserve increased by 1.3% to c £15.2m, which is c 1.3x the annual dividend payment. Recently, the board declared a first interim dividend of 1.00p per share in respect of FY24, which is 5.3% higher year-on-year. It expects to at least maintain the total FY24 dividend at 4.05p per share, using revenue reserves if required.

Exhibit 10: Full year ordinary dividend history since FY18

Source: DIVI, Edison Investment Research. Note: Excludes special dividends of 0.40p, 0.23p and 0.16p per share in FY17, FY18 and FY19, respectively.

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 £60,000 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 2023 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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 £60,000 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 2023 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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 £60,000 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 2023 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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 £60,000 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 2023 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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FY23 was a turbulent but ultimately pivotal year for Nanoco. The US$150m Samsung settlement (US$90m net costs) will fund the planned £33–40m return to shareholders with the retained c £20m providing good support to make the transition from development to commercial production. The company’s first commercial order is expected this calendar year. While volumes are expected to be relatively modest, this is a key milestone, and successful delivery should ease the pathway to follow-on orders and new customers. The partnership with an Asian chemicals company provides a second channel into the sensing market, while management also expects to add a third development partner potentially focusing on the display market over the course of FY24. In the longer term, pursuing other potential IP infringers could open other commercial opportunities, royalties or compensation payments.

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