CT UK High Income Trust: A Beacon of Income Resilience in a Volatile Market

In a year marked by geopolitical tensions, tariff uncertainties, and market volatility, CT UK High Income Trust (CHI.L) has emerged as a standout performer. The trust's FY25 full-year EPS of 12.30p—a figure that comfortably beat market expectations—coupled with its 5.9% dividend yield, positions it as a compelling income play. Under the seasoned leadership of Portfolio Manager David Moss, CHI has engineered a strategy that balances UK equity exposure with global diversification, all while leveraging gearing to amplify returns. For income-focused investors seeking stability in turbulent markets, this trust is a must-examine opportunity.

The EPS Beat: A Testament to Strategic Discipline

CHI's FY25 results reflect the precision of its portfolio management. While the interim quarter (Nov 2024) saw an EPS of GBX 2.65—matching consensus estimates—the full-year beat underscores the trust's ability to navigate sector headwinds. The 12.30p EPS represents a 14% increase over the trailing twelve-month figure, driven by:
- Banking Sector Outperformance: Positions in NatWest and HSBC, which have delivered strong returns on equity amid rising interest rates.
- International Diversification: Gains from holdings like Dunelm (UK home furnishings) and ASM International (semiconductors), which offset domestic economic pressures.

Income Resilience Through Sector Focus and Diversification

CHI's portfolio is a masterclass in risk management. Moss has pivoted away from volatile smaller-cap stocks (e.g., Asos, Delivery Hero) toward sectors with sustainable cash flows:

Sector Allocation Highlights (as of April 2025):
- Financials: 32% (banks, insurance)
- Consumer Staples: 25% (Smurfit Kappa, Unilever)
- Technology & Industrials: 28% (ASM International, SAP)
- International Equities: 15% (exposure to Europe and emerging markets)

This mix ensures income stability even as UK equities face headwinds. For instance, NatWest—a core holding—has seen its dividend rise 20% in 2025 amid robust net interest margins, while Smurfit Kappa benefits from steady demand for packaging solutions.

Gearing: A Double-Edged Sword, Masterfully wielded

CHI employs strategic gearing (borrowing to amplify returns) at a prudent level, with net gearing of ~15% of NAV. This approach has boosted returns on undervalued assets, such as HSBC, which the trust views as undervalued relative to its capital strength. While gearing carries risks, Moss's disciplined approach—focusing on low-volatility, cash-rich firms—minimizes downside exposure.

Why Invest Now?

1. High-Yield Stability: The 5.9% dividend yield is over 60% higher than the FTSE All-Share's 3.6%, with a track record of consistent payouts.
2. Capital Growth Potential: The trust's NAV total return of 19.5% over 12 months outperformed the FTSE All-Share.
3. Inflation Hedge: Exposure to sectors like consumer staples and industrials provides natural inflation protection.

Risks, but Manageable Ones

• Smaller Fund Size: At £130m in net assets, CHI may face liquidity constraints during sharp market moves.
• Geopolitical Uncertainty: Tariff risks and global economic slowdowns could pressure international holdings.

Final Verdict: A Secure Income Play with Upside

CT UK High Income Trust is a rare blend of income resilience and growth potential. With a high yield, diversified portfolio, and a manager who executes tactical pivots (e.g., exiting underperformers to focus on banks and global equities), CHI offers a compelling entry point. As interest rates stabilize and investors seek reliable income streams, this trust is primed to deliver.

Action to Take: Consider allocating to CHI.L for steady dividends and capital appreciation. Pair it with defensive sectors like healthcare or gold for further diversification.

In a market where volatility is the norm, CT UK High Income Trust stands out as a bastion of disciplined income generation. Don't let this opportunity slip away.