The Diverse Income Trust (DIVI) aims to provide shareholders with an attractive and growing level of income, as well as capital growth, over the long term. Unconstrained by index considerations, the managers (Gervais Williams and Martin Turner) have a wide investment universe from which to select companies that are well managed and able to deliver sustainable and growing dividends. The portfolio is well diversified, with a bias towards small-cap companies; since DIVI’s inception in April 2011 to end-September 2019, the trust has delivered an annualised NAV total return of 11.5% and consistent growth of its regular dividend.
UK equities have been increasingly out of favour since the referendum on EU membership in June 2016. They have moved from trading at a premium to a discount to global equities, which has widened since that time, reflecting the geopolitical and economic uncertainties presented by Brexit. At the current forward P/E discount of 18% there may be considerable upside potential for UK equities post a Brexit agreement, should relative valuations normalise.
Managed by two highly regarded and experienced portfolio managers who employ a long-established and disciplined bottom-up investment process. The portfolio is significantly differentiated from mainstream indices and may offer investors genuine diversification benefit. The managers are mindful of downside risk, investing in high-quality companies, while a put option on the FTSE 100 helps protect the trust from a sharp fall in the index.
DIVI currently trades at a 5.2% discount to its cum-income NAV, which is wider than its three-year average discount of 1.3%. The board is committed to maintaining the share price close to the NAV and there is an annual redemption opportunity for shareholders. There is scope for the discount to narrow should the current very weak investor appetite for UK equities, and small-caps in particular, improve.