Revenue reserves rebuilding: CT UK High Income

CHI’s dividend is now fully covered by earnings, and its revenue reserves are rebuilding…by Josef Licsauer

Overview

David Moss reached his two-year anniversary as lead manager of CT UK High Income in July 2025. Over this time, he has reshaped the portfolio with a focus on diversifying income sources and restoring dividend sustainability. Earnings now fully cover the dividend, and revenue reserves have started to rebuild, up 26% from the previous year and now covering around 60% of the annual dividend. The trust has two share classes, both of which continue to offer investors an attractive Dividend yield. This is 5.5% on the ordinary shares (CHI) and 5.7% on the B shares (CHIB) due to the wider discount, both above the FTSE All-Share Index’s 3.6% yield.

David’s portfolio adjustments since taking the helm are also starting to bear fruit in terms of performance. From appointment to 04/08/2025, CHI delivered a NAV total return of 37.4%, outpacing the FTSE All-Share Index’s 32.0% gain, with stock selection a key contributor to outperformance (see Performance).

More recently, activity has moved from broad restructuring, with much of that groundwork now complete, to something more akin with how David has typically managed capital over his career—emphasising long-term value, income sustainability and capital growth potential. One notable shift has been a greater allocation to UK mid-caps, with exposure rising from around 12% to nearly 17%. With a more diversified and resilient income base, David now has greater flexibility to target opportunities where yields may be lower today but offer stronger growth potential. Recent additions such as Breedon and Kier Group reflect this outlook, particularly given the attractive relative valuations in the mid-cap space. This further diversifies income streams and could enhance potential for both income and capital growth over time, positioning CHI to capitalise on a potential rerating within UK equities.

At the time of writing, CHI trades on a modest 0.5% premium versus its five-year average discount of 6.5%, whilst the CHIB sits at a 1.0% Discount, narrower than their five-year average of 6.2%.

Analyst’s View

From a double-digit discount to a slight premium, CHI’s rerating reflects renewed interest in its strategy, at a time when UK equities remain unloved and are trading at steep discounts to global peers and historical averages. We think the trust offers investors a compelling mix of resilience and recovery, with high-yielding stocks featuring durable dividends alongside lower-yielding but higher growth potential stocks with valuation upside. As interest rate expectations shift lower and investors reconsider undervalued UK equities, the trust’s high and growing income has regained appeal despite ongoing market pessimism and the UK remaining under-owned.

Under David’s stewardship, earnings have returned to fully covering the dividend and revenue reserves have been strengthened. This improvement reflects a renewed focus on companies with strong cash flow and durable competitive advantages, helping to support income through varying market conditions. Whilst this progress is encouraging, it also needs to be sustained over the longer term to be truly compelling.

A notable differentiator is the trust’s dual-share-class structure. The ordinary shares deliver regular income distributions, whilst the B shares offer capital distributions and currently trade at a discount. This makes the B shares particularly appealing for investors using tax-efficient wrappers such as ISAs and pensions, where both income and capital repayments are tax-free. For these investors, the B shares can provide a higher effective yield from the same underlying portfolio, presenting an attractive opportunity.

Overall, with improving UK fundamentals, likely interest rate cuts and early signs of rotation from US growth stocks into value-focussed UK equities, the trust’s elevated dividend yield, 5.5% on ordinary shares and 5.7% on B shares, combined with capital growth potential, positions it well for income-focussed and long-term total return investors.

Bull

• High level of income enabled by unique capital structure and gearing
• Dual-share-class structure offers potential tax advantages
• Distinctive portfolio and strategy means 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.}