Investment trusts suffered towards the end of last year, as investors sold across a range of asset classes. According to Wins Investment Trusts’ monthly report for December 2007, equity-focused funds were trading on an average discount to net asset value of over 10 per cent. British smaller company funds were hit even harder, with discounts reaching close to 20 per cent.
As a result, the second half of 2007 proved a tough environment for fund-raising and several proposed new issues were postponed, including Jupiter Equity Income and Close Agricultural Commodities Trust. Activity has remained at low levels so far in 2008 and, on February 7, the board of Henderson Diversified Income announced it would not seek to raise additional capital for the trust “in the immediate future”.
However, the Wins report for March, published last week, notes a change in sentiment towards the sector. Investment trust buybacks fell to £81m in February – the lowest level since November 2006 and a reflection of tighter discounts, which fell to under 9 per cent. This, and better returns from small caps and emerging markets, helped the FTSE Investment Companies index outperform the FTSE All-Share in February, for the second consecutive month.
Nick Roberts, a fund analyst at Williams de Bröe and an Adviser Fund Index panelist, remains broadly positive on investment trusts, despite their recent volatility. “Trusts give you access to some fantastic managers, cheaper AMCs and the possibility of gearing adding to returns,” says Roberts. “Most importantly, they have a fixed asset base – this is particularly important in asset classes like property.”
While Williams de Bröe has not had exposure to property trusts over the past 18 months, Roberts estimates that the firm holds about £250m in investment trusts overall. This includes allocations to “esoteric” global portfolios such as Lindsell Train, British Empire Securities & General, and Electric & General. Away from equity-based portfolios, Williams de Bröe also has a significant allocation to listed funds of hedge funds.
These include Signet Global Fixed Income Strategies, a Guernsey-domiciled fund which invests in a range of fixed income classes. According to Wins, demand for listed hedge funds remains strong, despite a lack of investor appetite for traditional investment trusts. Wins points to successful fund-raising by Signet, Dexion Absolute, FRM Credit Alpha, Thames River Hedge+ and Cazenove Absolute Equity, in February.
Mick Gilligan, director of fund research at Killik, says he took part in the Dexion share issue and was surprised to get stock “at the low end of the range.” He also bought into Terra Catalyst – one of two new investment trust launches in February. Gilligan sold his British property holdings midway through 2006 but has since bought into several other glo-bal property trusts.