UK trusts stage a revival
In the first of our Year In Review Series Good Returns looks at what has happened with listed Investment Trust Companies.
Wednesday, December 13th 2000, 10:45AM
One of the big innovations in the funds management industry this year has been the wholesale arrival of tax-effective UK authorised unit trusts and Open-Ended Investment Companies (OEIC). Despite their arrival and promotion by some of the big fund managers in New Zealand, the UK listed investment trusts still remain popular.
The investment trust is, after several years of tough times, well into a robust revival, according to Credit Suisse First Boston adviser Peter Irwin.
Irwin, who is New Zealand's resident ITC expert, has recently been in London and Scotland talking to managers.
"The industry remains relatively robust; discounts have significantly narrowed, new money is being raised and the Association of Investment Trust Companies (AITC) is about to commence its second year of the ‘its’ marketing campaign.
"It is spending a further £7.5 million ($25.9 mill) on generic marketing, this time specifically targeting the financial intermediary market, " he says
The key problems the ITC industry has been suffering from are a growing trend for trusts to trade on the market at significant discounts to net asset value. Part of this problem has been due to the fact that many of the funds had significant portions of
Narrowing discounts
Irwin says that discounts have been narrowing throughout the year. The average discount on mainstream investment trusts is currently around 10% compared to 15% this time last year.
Part of the reason for the narrowing discounts is that the amount of share buy-backs have increased.
"A total of £1.55 billion of shares has been bought back so far this year of a total £2.0 billion ($6.9 bill) since April 1999.
"Even in the most unfashionable sectors discounts may not stay as wide as they are for long," he says.
Arbitrageurs, aggressive investors which build up large stakes in undervalued companies and then seek to force reconstructions designed to narrow discounts, are focusing heavily on emerging markets companies and have already been successful in winding up a number of investment trusts.
"As a result, discount volatility has also been dampened meaning that, investors need to now pay increasing attention to the underlying investment process, and correspondingly less to short term rating issues. "
Lots of new money
Irwin says more than £3 billion ($10.3 bill) of new money has been invested into the international generalist sector alone since the beginning of the year through the launch of new companies, mainly in the technology and split capital sectors.
The last time the sector saw anywhere near this much launch activity was in 1995. In the past month, Henderson European Micro Trust raised £85.6m ($295 mill), Merrill Lynch New Energy Technology £200m ($689.6 mill) and The Independent Investment Trust £52m ($179.3 mill). On the split capital side, big deals include Media and Income, which has changed its mandate somewhat and raised new equity, and American Monthly income that raised £300m ($1.03 bill) - 42% of this was debt.
Industry promotion
One of the great things about ITCs in the UK is that many of the managers have banded together under the umbrella of their association, the Association of Investment Trust Companies, to fund and run a generic advertising campaign.
The ‘its’ campaign spent more than £17 million ($58.6 mill) last year on television and newspaper advertising in a bid to increase consumer awareness.
AITC is budgeting to spend a further £7.5 million ($25.9 mill) on targeted press and television campaigns next year.
To compliment the ‘its’ campaign many companies and managers have embarked on their own press and advertising campaigns.
"The AITC believes that more consumers need to be made aware of the benefits of investment trusts and that its initiative will benefit existing shareholders," Irwin says.
"There is certainly plenty of evidence to suggest that the AITC’s campaign is attracting more private investments into the sector. In the first half of this year close to £150m ($517 mill) was invested through Individual Savings Accounts (ISAs) almost triple the sum raised in the same period last year. Money invested via drip-feed savings schemes has seen similar dramatic increases."
Earlier stories
Investment Trusts stage a turnaround
Investment Trusts band together
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