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Investment trusts to get buyback powers

Investment trusts will be able to buy back their shares and hold them for potential future sale under new Government rules giving boards greater control over their capital structure.

From December 1, company law will for the first time permit ITs to buy back their shares and hold them in treasury, effectively eradicating the lack of liquidity that has long dogged the sector. Previously, ITs had to cancel any shares they repurchased, often denting their appeal to larger advisory firms.

The move has been welcomed by the AITC, which has been lobbying for ITs to be included in treasury share legislation since 1999. It says the decision will lead to a reduction in discounts and discount volatility by giving trusts greater control of supply and demand and allow them to raise funds without gearing or the sale of other investments.

As treasury shares can be sold without incurring stamp duty, the AITC also points out that trusts could be sold through products with a 1 per cent charging cap.

Director general Daniel Godfrey says: “Lack of liquidity has always been a problem in the past. No longer. ITs continue to raise their game, as they must, if they are to satisfy the needs of a population which has to save more than ever before.”

Iimia head of investment trusts Nick Greenwood says: “It is an important development. The imbalance between supply and demand creates instability but this has countered that. It may take time to be used but it is all very positive.”

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