The CF Miton select assets fund is holding some smaller specialist investment trusts which are trading on wide discounts due to investors’ fear of illiquid assets.
MAM Funds, which runs the CF Miton fund, believes investors have been scared off specialist trusts that invest in small and medium-sized companies since the severe lack of liquidity in investment markets during the fourth quarter of 2008.
CF Miton select assets fund manager Nick Greenwood believes this has had a lasting effect on the type of assets that private clients, stockbrokers and wealth managers are buying so they now focus on the bigger, more liquid companies.
Greenwood says the smaller, more specialist investment trusts that were typically launched between 2006 and 2008 have been left trading on wide discounts to net asset value compared with conventional investment trusts. He says that with specialist areas of investment such as property, there can be a mismatch between liquidity and the assets available to buy in the market.
In bull markets, Greenwood says it can become difficult for property fund managers to find the right opportunities so they come under pressure to invest, may invest in a hurry and then find they cannot sell the assets in a bear market.
He says closed-ended structures are better for illiquid asset classes because it is the share price that takes a hit in difficult times rather than the underlying net asset value.
He says: “It is not just about the discount you can get, it is assessing what the true net asset value is. Prices are either too cheap or too expensive, so we look at what the discount should be.”