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T Bailey is backing investment trusts

T Bailey Asset Management is holding investment trusts in its equity income fund of funds because it believes they currently represent a good short-term trading strategy in the pursuit of income.

The company will not hold investment trusts in its growth fund of funds because the objective is sufficiently met by a long-term buy-and hold strategy using open-ended funds.

But the ability to make shorter-term plays on the high yields produced by some investment trusts is attractive to T Bailey fund managers Jason Britton and Richard Martin. They believe multi-managers should at least consider investment trusts before dismissing them.

T Bailey’s equity income fund of funds now holds 80 per cent of its portfolio in open-ended funds and 20 per cent in investment trusts such as Merchants and Shires smaller companies. Investment trust exposure is unlikely to inc- rease but may be reduced to zero if felt appropriate.

The current investment trust holdings were chosen because although they were trading at a discount, Britton and Martin expected these discounts to narrow. According to Britton, some of the trusts are now trading at a premium to their net asset value, which he sees as justifying their inclusion.

Britton says: “This topic has become a bit of a hot potato. A lot of trusts have been downgraded, rather harshly I think, as a result of the negative publicity surrounding split caps.

“Some groups have said that they would not want to touch investment trusts because there are liquidity issues and they might get caught out by widening discounts. But we felt that as Ucits III has given us the flexibility to invest in them it is only right and proper to consider them if this could benefit our unitholders.”

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