The investment trust industry has seen its discount fall by over £163.5bn in the last year – that is a lot of shareholder value added. The principal drivers of this narrowing of the discount have been good performance, share buybacks and increased marketing commitment.
In March 1999, the industry stood at a wide discount and its demise was being confidently predicted. It was claimed that investment trusts were the products of yesteryear and that, if you were starting today, you would not invent them now.
But that is a false premise. The investment trust is still the best structure for making money over the longer term through collective investment. The closed-end structure, the broad investment powers, the ability to gear, the low charges and the independent boards make it so.
Of course, that does not mean the advantages of the structure are always realised in practice. But it does mean it would have been a tragedy for consumers had this vehicle, with all its potential, been allowed to fade away.
That is why, in March 1999, the AITC proposed a strategy for revitalising the sector. We wanted to combine confidence-building measures with steps to improve standards and a generic marketing campaign to build awareness.
Individual managers and boards would then leverage off this awareness to increase purchases from IFAs and retail investors. Thus, discounts would be reduced and shares would move gradually from institutions which no longer needed them to private shareholders for whom they were ideal. We have been running the generic campaign for two years now and it has clearly had an impact in reducing discounts by way of a marginal increase in demand.
But we have not yet made the step change that will be required to secure these gains. To do so, we need to see purchases not just double, as they have, but increase perhaps tenfold. That is why we are proposing that the generic advertising programme should continue at least for the medium term and that it should be funded by all members at the rate of £163.15,000 per £163.100m of gross assets under management.
The process now is great fun for spectators. Will there be blood on the floor? Naturally, people are interested to see if members support these proposals and, if so, what will happen to members which do not? If the proposals fall, what will happen to the proposer?
It is not easy to build a consensus for a generic programme like this. While it might be obvious that the programme is good for the industry in general, each board has to decide whether it is worth the money to their shareholders.
Of course, I think £163.15,000 per £163.100m is de minimis and that we should just get on with it. But for a board faced with writing a cheque each year for a six-figure sum, it is a hard decision to take.
For me, the compelling reasons for going ahead are that the need to change the shareholder base is still there and that what we have done so far is genuinely working – albeit perhaps more slowly than we would like.
The fact that we have come so far and introduced the “its” logo has been a stunning success. I am confident the industry will find a way forward to build on this platform of success to the benefit of our shareholders.