For some time, iimia has held the view that discounts are effectively trending towards zero. The benign effects of a rampant three-year bull market have obscured structural changes within the investment trust market brought about by the activities of activist investors such as hedge funds and arbitrageurs.The availability of sophisticated hedging techniques means it is no longer sustainable for an investment trust to trade on much of a discount. Investors can simply accumulate sufficient shares to force a trust into a reconstruction or wind-up. By simultaneously owning derivatives that offset the market risks acquired along with the stake in the trust, these traders make straightforward profits from the elimination of the discount. Hedge funds need to keep the action going as investors are fickle. They will welcome the sharp markdown in investment trust share prices as an opportunity to reload and target their next victims. Shareholdings now being acquired will form the platform from which the next round of attacks will be launched. Once these come to fruition, the boards of many trusts will react to seeing their peers being broken up by introducing much tighter discount control mechanisms. If they fail to take this action, they run the risk of seeing their own shareholder registers fill up with aggressive holders. This process will continue until discounts are too tight to generate profits for these traders. Therefore, anybody buying into this sector at the current depressed levels will see their investments outperform the underlying portfolios. The new breed of closed-end fund also offers excitement for the medium term. Numerous funds have been launched during a period of frenzied activity, nearly all of which have more specialised and focused mandates than in the past. This reflects the move away from closet tracking towards more adventurous strategies. This trend has led to illiquid portfolios so a closed-ended structure is natural for many new ventures. However, we doubt that the industry will be able to value this new breed properly. Analysing the likes of wind farms, venture capital in India and retirement property is more akin to assessing smaller companies. Share prices will move out of sync, offering a fantastic opportunity.
Lambeth Building Society has approved its merger with Portman Building Society. The effective date for the merger is expected to be September 30, 2006. Lambeth chief executive Chris Radford says: “The Lambeth is a strong business that offers excellent products and service to its members and this merger means they can look forward to continued […]
Money Marketing has great sympathy for Lansons PR and uber Arsenal fan Joe Laing. Having got tickets at the last minute for the Champions League Final last week, the Lansoneer rushed to get the Eurostar in time to get to Paris for the match. After paying an obscene amount of money for his ticket, he […]
Ron Sandler, the former architect of the Government’s plans on savings simplification has joined Paternoster as chairman.Sandler, who was also the chief executive of Lloyds of London joins the new life assurance venture which is awaiting approval from the FSA.He is also the chairman of Computacenter plc, the Kye Group and Oxygen plc.Sandler says: “It […]
Bedlam Asset Management has brought out the Bedlam 200 fund, which aims to provide income and growth from a portfolio investing 50 per cent in UK equities and the remainder overseas.
Mike Riddell, fixed income portfolio manager at Allianz Global Investors, reviews the performance of the UK government bonds market post-Brexit and assesses its future prospects, as well as giving his outlook for global fixed income markets and yields movements. In addition, he provides a brief analysis of the impact of Brexit and the Bank of […]
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