The Diverse Income Trust — Anticipating a UK small-cap super cycle

The Diverse Income Trust’s (DIVI’s) managers, Gervais Williams and Martin Turner at Premier Miton Investors, are currently remarkably upbeat. Usually, when market leadership becomes too concentrated, like now in US large-cap technology stocks, investor preferences shift towards another group of companies. The managers believe that equity income stocks are set to become the new market favourites as, in a nationalistic world when asset prices are volatile, a steady stream of cash paid directly into investors’ bank accounts becomes a major advantage. They expect this trend to particularly favour the UK stock market as it has a large cohort of equity income stocks and has been devalued by persistent outflows since Brexit. Williams and Turner consider that many UK small-cap equity income stocks have fallen to ‘absurdly low valuations’; hence, they are the most bullish that they have been for 30 years. The managers anticipate a UK market super cycle, especially within small-cap stocks, which would likely become a very favourable long-term tailwind to DIVI’s performance, in addition to the value generated by the trust’s income strategy.