The Diverse Income Trust Plc - Annual Financial Report
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR TO
AND
NOTICE OF ANNUAL GENERAL MEETING
THE KEY PERFORMANCE INDICATORS
Net Asset Value – Year to 31 May 2025*14 2025% 2024% NAV Total Return 12.8 16.5 Deutsche Numis All Share (Comparator Index) 9.7 15.6 Peer Group2 8.8 15.6
Average discount to NAV+14 Period % Year to31 May 2025 (7.1) Year to31 May 2024 (7.1) Since launch to31 May 2025 (1.2)
Dividend growth+1 Period p ↑5.9% Year to31 May 2025 4.50 Year to31 May 2024 4.25
Ongoing charges+14 Period % ↓(0.01)% Year to31 May 2025 1.13 Year to31 May 2024 1.14
NAV per ordinary share+ Period p ↑7.9% Year to31 May 2025 106.69 Year to31 May 2024 98.87
Net Asset Value Total Return – Since launch to31 May 2025 * % NAV total return 264.6 Deutsche Numis All Share (Comparator Index) 140.1 Peer Group2 210.4
Share price total return*3 Period % ↑8.1% Year to31 May 2025 20.8 Year to31 May 2024 12.7
Revenue return per ordinary share+4 Period p ↑11.4% Year to31 May 2025 4.9 Year to31 May 2024 4.4
* Source: Morningstar.
† Source: Company.
1 KPI, defined in the Glossary.
2 Defined in the Glossary.
3 Defined in the Glossary.
4 Alternative performance measure.
CHAIR’S STATEMENT
“The Company delivered a net asset value total return of 12.8%, ahead of the
Introduction
The past year has seen 2024’s limited green shoots in the
The overall effect has been to put a brake on companies’ plans to hire and invest, owing to the lack of clarity over government attitudes to business and the uncertainties affecting global trade. Repeated policy gyrations have encouraged equity markets to put aside much of the bluster in the tariff debate, with a degree of rotation out of the hitherto dominant US market, allied to weakness in the US dollar, enabling the
Returns to shareholders and performance
The Company delivered a net asset value total return of 12.8%, strong in absolute terms and ahead of the
The Trust’s Revenue Earnings per Share increased by 12.0% this year to 4.87p. The Trust increased its dividend to shareholders by 5.9% this year from 4.25p to 4.50p, which includes the three interim payments already declared and a recommended final dividend of 1.35p to be approved at the AGM. The rise is well ahead of the 3.4% rate of
This return was achieved despite smaller companies and AIM stocks, in which much of the Company’s portfolio is typically invested, continuing to lag the wider market and underlines the importance of stock selection even in the more positive conditions that have begun to characterise the
Smaller capitalisation stocks delivered only half as much (+5.0%), while AIM stocks continued to be sidelined, the Deutsche Numis AIM index seeing a decline of 6.4%.
Twelve month total returns of the Trust and various Deutsche Numis indices
% NAV Total Return 12.8 Deutsche Numis All Share Index 9.7 Deutsche Numis Small Cap Index ex ICs** 5.0 Deutsche Numis Alternative Markets Index ex ICs** (6.4)
** Investment Companies Source: Morningstar
Market valuation and share redemptions
Although the disinvesting trend from
With the improved sentiment towards
Each year the board offers shareholders a voluntary redemption opportunity. This year, the date was moved from a redemption point at the end of May to the end of August, in order to avoid accounting and administrative complications over the Company’s year-end. At
Since the Trust was launched in 2011, the voluntary redemption mechanism has worked effectively, with the Trust’s share price on average trading at a 1.6% discount to its NAV.
*Alternative performance measure
Board succession
Prospects
The initial market reaction to President Trump’s
The recovery in markets is broadly rational, with the significant caveat that misjudgements may be made by the US or others in treating international diplomacy as a game of bluff and negotiating tactics. A recession or a rise in inflation could be the result.
The rise in defence spending and the general global decline in interest rates are tailwinds for economic activity and risk-taking, while recent US policy changes appear to have encouraged investors to diversify their investments more widely beyond the expensively rated US equity market and, within it, the premium rated major technology companies. This has been to the benefit of non-US global markets, including the
From launch in
Chair
MANAGER’S REPORT
Who are the fund managers that have day-to-day responsibility for the makeup of the Trust’s portfolio?
Gervais joined Miton in
Martin joined Miton in
Market trends over the past decade
Over the last ten years, global stock markets may have risen, but their returns look rather pedestrian when compared with the returns of very large US technology stocks. The seven largest, known as the Magnificent Seven, ‘Mag 7’, have risen by a giant 2,589.6% in Sterling terms over the period. Returns of this magnitude have depressed the returns of all comparators, as investors have withdrawn capital from all other global equities to participate in this rise.
In addition, in rapidly rising markets, the returns from equity income stocks often appreciate less rapidly than the more volatile share prices of growth-oriented companies, with the result that the
Market trends over the year to
Over the 12 months to
Even as US stock market returns became less buoyant over the last few months of the Trust’s financial year,
Changes to the portfolio
During the year, with the number of
The largest new holding bought in the period was Greatland Gold, a
The portfolio was made up of 97 stocks at the year end, compared to a total of 117 holdings twelve months earlier.
Changes to the portfolio industry sector weightings
Over the year to May, the weighting in the Financial Industry sector rose from 35% to 41%, in part as a result of the strong performance of a number of individual stocks. The change was also due to an increase in the weighting of the Banks sub sector from 1% to 5%. Interestingly, the global industry classification standard, “GICS”, includes neither the new OSB holding nor the holding in
Consumer Discretionary weightings also increased from 6% to 9%, as many small holdings started in the previous year were built up into full holdings. Examples include AO World, which sells home appliances, the radiator manufacturer,
The portfolio weighting in Energy fell from 11% to 8% in part due to disappointing returns from oil and gas company
The Trust’s returns
As highlighted above, over the year to
As it was, over the year to
The underperformance of
As with the year under review, since launch the Trust’s portfolio has generated considerable added value, and hence its return since
What were the principal contributors and detractors to the Trust’s performance during the 2025 financial year?
Largest 5 contributors to performance %Pan African Resources Plc 1.86 Greatland Gold Plc 1.62Galliford TryHoldings Plc 1.51Concurrant Technologies Plc 1.49XPS Pensions Group Plc 1.49 Largest 5 detractors from performance % Savannah Energy Plc (1.75) Zotefoams Plc (0.70) Conygar Investment Company Plc (0.64) CT Automotive Group Plc (0.57)Man Group Plc /Jersey (0.56) Source: Premier Miton
Outlook
Traditionally, global economies have periods of expansion, with intervening periods of recession. Investment in productivity improvement is tested during recessions, such that only the genuinely productive survive. The cycle of expansion and setback usually favours better managed corporates and in doing so drives long-term improvement. Importantly, ongoing long-term productivity improvements are then reflected in wage growth that exceeds inflation.
The economic pattern has been different during globalisation. In general, the near unlimited surge of low-cost imports has offset local service price inflation, such that in many developed economies inflation has been benign for decades.
During economic setbacks, for instance the Global Financial Crisis in 2008, and Covid in 2020, inflationary pressures were not generally feared, and central banks resolved these crises by injecting substantial financial stimulus, with the result that relatively few corporates failed. The net effect was that during globalisation, global productivity improvement was sub-normal. Furthermore, following the widespread introduction of the policy of Quantitative Easing in 2009, the additional distortion this brought to market prices may explain why productivity has generally flatlined subsequently.
Furthermore, given the absence of meaningful productivity improvements since 2008, the wages of many staff have not increased ahead of inflation. In our view it is the absence of wage improvement that explains why, even prior to Covid, many of the electorate started voting against the status quo. Over recent years, with the surge in inflationary pressures, many voters now believe that a major change in government policy is even more urgent.
Given this background, we believe that the economic trends that drove the outstanding returns of the US technology megacaps have come to an end. Furthermore, we also believe there will be weighty consequences to come from the introduction of US trade tariffs. Indeed, given the scale of the proposals, we anticipate equally meaningful unintended consequences.
Whilst the timings of specifics are somewhat unknowable, we believe that in the absence of near-unlimited deflating goods, central banks will routinely have to address periods of both excess inflation and deflation. These will lead either to a major setback in corporate profit margins or a derating of equities, possibly both. From a business perspective this implies a much more severe period of corporate insolvency, with even some of the survivors potentially delivering poor returns.
Equity income stocks have a disproportionate advantage when equity market liquidity is tight. Whilst most corporates need to focus on cashflow survival, companies generating surplus cashflow can acquire overindebted, but otherwise solvent companies, debt-free from the receiver, for almost nothing. As a result, during recessions we anticipate many quoted equity income stocks will accelerate their earnings growth via acquisition. And as the maths works so much better down the market capitalisation range, certain small caps will make relatively substantial acquisitions at almost no cost, potentially delivering transformational upgrades in their earnings.
The bottom line is that in contrast to much of the period to date, we believe the Trust’s strategy will be the beneficiary of a strong market tailwind in future. Furthermore, if we can continue to add further value via careful stock selection, then the Trust’s investment case appears to be immensely strong. We believe it is the best we have seen for thirty years.
“As globalization fades, Trusts that deliver a major proportion of their return via cash dividends, such as Diverse, appear set to outpace those with greater reliance on buoyant stock markets and NAV appreciation.”
The Investment Managers’ view of benefits and opportunities in the
Q. Why was the Trust set up with a focus on equity income stocks?
Stock market share prices fluctuate all the time. Hence, over an annual reporting cycle, the NAV of a trust may increase by a large percentage, or suffer a setback, with rises in some years offset in part by falls in others.
Importantly in this context, the return provided by the Trust’s stream of dividend payments provides a sustained and - to date - an ever-increasing stream of dividend cashflow, helping to ensure both strength and consistency of total return.
The Trust’s ordinary dividends have grown steadily since launch. In 2020-2021, when many portfolio companies cut their dividends as a result of the pandemic leading to a decline in the Trust’s annual
revenue, this temporary setback was countered by drawing upon reserves built up in prior years, enabling the Trust to continue to pay increased dividends. Since that date the Trust’s revenue has fully recovered, and its annual revenue and dividends have continued to grow. This is in contrast to dividend income paid by the
Q. To what degree might the Trust’s potential long-term total return be compromised by pursuing a good and growing income strategy?
During recessions companies often run short of ready cash, which may force them to sell parts of the group at distressed valuations. In the most indebted cases, insolvency may result, leading them to be sold debt-free, often for a nominal sum, by the receiver. Companies with an abundance of surplus cash with which to acquire such businesses may see their own growth rates accelerate, leading in turn to strong outperformance.
During periods of economic expansion, and the benign inflation that prevailed during globalisation, central banks and governments were able to shelter corporates deploying more aggressive tactics during economic setbacks, such that relatively few ran short of cash. We would argue that the potential downside risks that come with these more aggressive strategies have not been apparent for many years.
With the resurgence in nationalism, however, more testing economic downturns may once more become a regular feature.
In this environment, we believe that the benefits of an equity income strategy will become better appreciated, especially if it outperforms those with more aggressive characteristics by a wide margin.
We believe that the success of an investment strategy can only be properly assessed following a testing economic setback as well as during periods of growth, and that as such the full advantages of the Trust’s strategy have yet to become apparent. Nonetheless, since issue the Trust has been one of the best performers in its
Q. What do you think are the key benefits of the Trust’s multi cap strategy?
The Trust’s strategy allows us to consider potential investments in large quoted companies as well as medium-sized and smaller ones, including many listed on the Alternative Investment Market. This broad investment universe includes many younger, immature companies that we expect will succeed in growing their dividends more rapidly than the market overall.
We believe that the Trust’s multicap strategy has enhanced the growth of its dividend stream and hence helped it to outperform its
When corporate expansion is prolific, the risks of restricting the investment portfolio to a limited universe of quoted companies may not be particularly evident. If global growth becomes less stable however, then fewer equity income stocks will be able to continue to pay out good and growing income. Against such a background we believe that employing a multicap approach has conspicuous advantages not just in terms of generating a stronger dividend outcome but also delivering a better total return.
Q. So is that why you also consider the industry sector diversification of the Trust’s portfolio to be important?
There are major risks in relying on a small number of very large holdings to fund a good and growing stream of dividends. Were even a limited number of individual stocks to cut their dividends, then the Trust might be forced to do the same in turn. Investing across the full range of industry sectors typically results in a broader list of portfolio holdings, helps dilute stock specific risk, and in turn drives greater resilience in the trust’s revenue stream and dividends.
All the industry sectors are usually represented in the portfolio. During the pandemic for example, the Trust’s holdings in industry sectors such gold mining and financial asset transactional companies greatly boosted its revenue and dividend income. A principal reason why the Trust was able to continue to pay growing dividends was in other words its unusually broad portfolio diversification by industry sector.
Over the ten years to
Capital flows into the mega caps have typically been funded by withdrawing capital from other parts of the global stock market. This has depressed the returns of many mid and large caps, but it has been the valuations of small caps that have suffered the most.
Brexit uncertainties also led many local investors to reallocate
Persistent small cap underperformance of this magnitude is highly unusual. Whilst the returns of small caps may be outpaced by larger companies at times, over the longer term it has usually been the case that the smaller a company’s market capitalisation, the greater its return. Given the scale of small cap underperformance, some question whether past stock market patterns have permanently broken down.
We argue not. We are greatly reassured by the fact that many small cap stocks have continued to generate good and growing dividend growth, at odds with the drawdown of their share prices. We are currently meeting companies whose share prices we believe could easily rise by three- or five-fold. In our view, small caps are overdue a giant performance catch-up, and with a majority of the Trust’s portfolio so invested it should outperform in scale when that occurs.
While recent returns from the
Prior to globalisation it was the
So as economic patterns evolve beyond globalisation, we believe that markets are likely to return to this earlier trend. If so, we believe the Trust has the potential to greatly outpace the returns of most international comparatives, including the US.
For the avoidance of doubt, our confidence is not based on belief that the prospects for the
“We believe that the Trust’s multicap strategy has enhanced the growth of its dividend stream and hence helped it to outperform the
Q. Finally, why is meeting company management so important to you in terms of the make-up of portfolio? You say it has very real benefits.
We allocate a huge amount of our time to face-to-face meetings with company management. Large companies often meet professional investors in group meetings, which do not facilitate real insight. Posing and noting how management react to uncomfortable questions – difficult to do in a group meeting - can add real understanding. Fortunately, further down the market capitalisation range one-to-one meetings are readily available, and often therefore yield greater insight as a result.
Meetings with our current holdings provide an opportunity to test our conviction in the light of events that have occurred since purchase. Meetings with other management teams may offer extra insight into current market conditions, prompting adjustments to existing holdings. We also meet companies operating in industry sectors with prospects that are less correlated with the rest of portfolio, providing a different perspective, and further enhancing portfolio diversification.
We also place considerable emphasis on helping management teams to better explain the upside potential of their businesses. If successfully communicated, this can drive improved valuations, in turn making it easier to accelerate expansion plans through share issues.
By pursuing an intensive meeting programme and gathering as much information about the portfolio holdings as we do, sometimes we are comfortable taking a risk that others may perceive as excessive, a risk that based on our additional insight, we consider to be only moderate. And vice versa. We believe that it is a deeper appreciation of absolute risk that helps us to scale back unnecessary systemic uncertainty from the portfolio. This is why we place such a high priority on face-to-face company meetings. It is also why we have such deep conviction that the Trust has a far stronger chance of continuing to deliver a return well ahead of its
“We believe that the best opportunity for adding value is via listening and then questioning corporate management teams directly. We therefore seek to maximise the time we engage with quoted company leadership teams.”
PORTFOLIO INFORMATION
As at
Sector & main Yield* Rank Company activity Valuation £000 % of net assets % 1 Galliford Try Industrials 8,341 3.4 4.1 2 TP ICAP Financials 7,252 3.0 6.1 3 CMC Markets Financials 7,060 2.8 3.7 4 Concurrent Technology 6,549 2.6 0.5 Technologies** 5 AVIVA Financials 6,342 2.5 5.8 6 XPS Pensions Financials 6,151 2.4 2.7 7 PayPoint Financials 6,113 2.4 5.4 8 Pan African Basic Materials 5,967 2.4 2.1 Resources** 9 Secure Trust Bank Financials 5,350 2.1 4.8 10 Plus500 Financials 4,853 1.9 5.1 Top 10 investments 63,978 25.5 11 Phoenix Financials 4,796 1.9 8.5 12 NewRiver REIT Real Estate 4,775 1.9 7.8 13 Kenmare Resources Basic Materials 4,616 1.8 6.3 14 H&T** Financials 4,527 1.8 2.8 15 BT Telecommunications 4,360 1.7 4.5 16 Sainsbury (J) Consumer Staples 4,133 1.6 7.8 17 Greatland Gold** Basic Materials 4,129 1.6 - 18 Diversified Energy Energy 4,046 1.6 8.5 19 Legal and General Financials 3,911 1.6 8.6 20 Victorian Consumer 3,897 1.5 0.7 Plumbing** Discretionary Top 20 investments 107,168 42.5 21 Yu Group** Utilities 3,788 1.5 3.9 22 Ithaca Energy Energy 3,745 1.5 18.5 23 ME Group Consumer 3,717 1.5 3.7 International Discretionary 24 Lloyds Banking Financials 3,656 1.4 2.7 25 Sabre Insurance Financials 3,627 1.4 8.7 26 AO World Consumer 3,534 1.4 - Discretionary 27 M&G Financials 3,526 1.4 8.5 28 TruFin** Financials 3,494 1.4 - 29 Personal Group** Financials 3,429 1.4 5.7 30 MAN Financials 3,316 1.3 8.3 Top 30 investments 143,000 56.7 31 National Grid Utilities 3,309 1.3 11.9 32 McBride Consumer Staples 3,176 1.3 - 33 Tesco Consumer Staples 3,094 1.2 3.5 34 Hunting Energy 3,045 1.2 3.4 35 Stelrad Industrials 2,986 1.2 5.4 36 Zotefoams Basic Materials 2,840 1.1 2.5 37 OSB Group Financials 2,811 1.1 4.7 38 Norcos Industrials 2,801 1.1 4.0 39 Admiral Financials 2,656 1.1 5.7 40 Vanquis Banking Financials 2,600 1.0 - Top 40 investments 172,318 68.3 Balance held in 57 74,161 29.4 equity investments Total investment 246,479 97.7 portfolio Other net current 5,738 2.3 liabilities Net assets 252,217 100.0
A copy of the full portfolio of investments as at
* Based on historical yields and therefore not representative of future yields. Includes special dividends where applicable.
** AIM/AQUIS listed.
Portfolio exposure by sector (%) £246.5 million Financials 41.2 Industrials 11.7 Basic Materials 10.4 Consumer Discretionary 9.1 Energy 8.6 Technology 4.9 Consumer Staples 4.2 Utilities 3.4 Telecommunications 3.0 Real Estate 2.7 Health Care 0.8 Income by sector (%) £12.0 million Financials 44.2 Energy 11.4 Industrials 11.3 Basic Materials 7.5 Utilities 5.1 Consumer Discretionary 5.0 Telecommunications 4.9 Real Estate 3.8 Consumer Staples 3.7 Technology 1.6 Health Care 1.5
NOTICE OF ANNUAL GENERAL MEETING
The thirteenth Annual General Meeting of the Company will be held on Wednesday,
FURTHER INFORMATION
The Diverse Income Trust Plc’s annual report and accounts for the year ended
It will also be submitted shortly in full unedited text to the
ENDS
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.
LEI: 2138005QFXYHJM551U45
