Diverse Income Trust: investment insights and market update

Diverse Income Trust plc (LON:DIVI) fund managers, Gervais Williams and Martin Turner provide their latest Investment Insights. 

During October, as the cost of energy continued to rise, global growth slowed, particularly in China where there have been electricity shortages. These headwinds are a challenge to all companies and were reflected in a 1.60% decline in the FTSE AIM All-Share Index and a 1.18% decline in the FTSE SmallCap Index (excluding Investment Companies).

With the rise of the US Dollar exchange rate the FTSE All-Share Index had something of a fillip over October, rising 1.82%. The Diverse Income Trust portfolio isn’t closely correlated with the mainstream indices, so its Net Asset Value (NAV) reflected the wider trend and declined by 1.68% over the month.

With the risk of more unsettled trading conditions up ahead, we believe the Diverse Income Trust strategy has some advantages that are distinctive. Its portfolio includes many young businesses that typically operate in immature industry sectors, which have prospects that are less correlated with the fluctuations of global growth. When global growth was challenging in the past, the quoted companies outside of the mainstream indices tended to outperform.

The Trust’s portfolio holdings are actively selected with the potential to generate additional cash surpluses in the short to medium term. Hence, even when stock markets are weak, such as during the recent pandemic, these stocks typically have the necessary capital to succeed. Furthermore, being income stocks, many stand on overlooked valuations as well, so there is greater growth potential if they prosper.

Overall, if market trends are changing, we anticipate that the Diverse Income Trust strategy may have certain favourable tailwinds that are distinctive to its strategy. A good example of that potential was evident last year, when the Trust’s share price and NAV outperformed many others despite the global recession, as its less correlated approach gathered support from a wide range of investors.

The Diverse Income Trust plc (LON:DIVI) invests primarily in quoted or traded UK companies with a wide range of market capitalisations, but a long-term bias toward small and medium sized companies.

The Company may also invest in large companies, including FTSE 100 Index constituents, where it is believed that this may increase shareholder value.

The Managers adopt a stock specific approach in managing the Company’s portfolio and therefore the amount apportioned to a particular industry sector is of secondary consideration. As a result of this approach, the Company’s portfolio does not track any index.

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