Outperforming the index over three years: CT UK High Income

CHI’s David Moss has outperformed the index under his near three-year tenure…by Josef Licsauer

Overview

CT UK High Income (CHI) has continued to evolve under David Moss, with Portfolio refinements reflecting his emphasis on income sustainability and diversified growth drivers as he approaches his third anniversary at the helm. Over the past year, changes have continued to illustrate his active approach: allowing winners to run where appropriate, whilst remaining willing to reassess positions as new information emerges.

Admiral, for example, was initiated amid stabilising inflation and improving capital returns, with the trust benefitting from its special dividend. However, the position was exited several months later as new developments challenged the original investment case. Proceeds were recycled into opportunities including Prudential, where David sees a more compelling blend of current income and structural growth through its Asian franchise. Elsewhere, Croda and Next were added on valuation grounds. On the sell-side, SSE was exited following strong performance and yield compression, with capital reallocated into higher-yielding Ashmore. Positions in Pearson and Experian were also sold.

This disciplined and valuation-aware approach has translated into improved outcomes. Since David assumed lead responsibility in July 2023, the trust has delivered a NAV total return of 53.0%, ahead of the FTSE All-Share’s 49.8%. Performance over the past 12 months has also been strong despite a volatile backdrop. In a year marked by geopolitical tensions, shifting rate expectations and AI-driven market rotations, the trust delivered a NAV total return of 21.2%, slightly behind the FTSE All-Share’s 23.7%. The share price total return, however, was stronger at 25.4%, reflecting both underlying performance and a narrowing of the discount.

The trust currently offers a net Dividend yield of 4.8% on the ordinary shares (CHI). The B shares (CHIB) provide a comparable yield of around 4.8%, delivered through capital repayments rather than dividends. The trust has also increased its distributions for 12 consecutive years and, based on dividends/capital repayments declared year to date, appears on track to extend this record in the 2026 financial year, although there are no guarantees.

At the time of writing, CHI trades at a small premium compared with a five-year average Discount of 5.4%, whilst CHIB trades at a c. 0.2% discount versus a five-year average of 5.6%.
 

Analyst’s View

We think CHI has re-established a clearer identity under David. The trust’s purpose is not to chase market rallies, but to deliver a high and growing level of income through ownership of quality, cash-generative UK businesses. That emphasis is important. In strongly momentum-driven markets, a portfolio built around dependable dividend payers is unlikely to surge ahead of its index, but when executed well, it can provide investors a compelling combination of resilience, compounding income and capital growth.

Approaching three years into his tenure, we think David’s progress on his original aims is, so far, encouraging. NAV performance has moved ahead of the benchmark since his appointment, income growth has continued, revenue reserves have strengthened and dividend cover, in its last financial year, have been restored. Just as importantly, the underlying earnings power of the portfolio appears to have improved, alongside broadening performance drivers beyond pure yield support. A premium yield to both market and peer group average, growing distributions and strong capital returns represent a credible outcome for an income-focussed mandate.

The trust’s dual-share-class structure remains a differentiator. The ordinary shares provide an attractive yield relative to the UK market, whilst CHIB trades on a wider discount despite exposure to the same portfolio, a feature that may appeal to investors using tax-efficient wrappers. That said, the trust’s relatively small size contributes to a higher OCF, and structural gearing can amplify volatility in weaker markets.

Overall, we think the narrowing discount reflects improved execution and renewed interest in UK income strategies. With UK valuations still undemanding and cash rates easing, we think CHI has a clear role for investors seeking differentiated, income-led exposure to the UK, provided its recent progress is sustained over time.

Bull

• High level of income enabled by unique capital structure and gearing
• Dual-share-class structure offers potential tax advantages
• Distinctive portfolio and strategy mean it could complement a traditional equity income portfolio

Bear

• Discounts have been volatile in the past
• Relatively high OCF versus UK equity income peers
• Use of gearing could magnify the gains but also the losses

See the full research on CHI here >

^Disclaimer

^{This is a non-independent marketing communication commissioned by Columbia Threadneedle Investments. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.}