Investors stick to income ITs amid rally
After a tough 2011 investment trusts experienced an upturn in the first quarter of this year
Investment trusts have seen a turnaround in performance in the first half of 2012, following a tough fourth quarter in 2011.
According to Morningstar, 34 of the 41 investment trust sectors underperformed on an average total return basis in the final three months of 2011, with Property Direct: Europe being the worst hit, recording a loss of almost 32 per cent.
However, closed-end structures have flourished in the first three months of 2012, with only 12 sectors reporting negative figures.
The top performing sector in the first quarter of 2012 was Sector Specialist: Biotechnology and Life Science, with funds on average returning 10.85 per cent. The best performing fund, the Biotech Growth trust, returned a whopping 21.92 per cent.
In spite of this, however, the sector experienced net outflows of more than £2m, with investors opting for the more mainstream sectors instead.
The UK High Income sector, for example, has been the bestselling so far, experiencing inflows of £64m for the first quarter of 2012, according to Morningstar.
And according to the AIC, the popularity of income in general shows no signs of abating, as a number of companies have sought to increase their dividends this year, in some cases to address the discounts at which their shares trade to the value of their investment portfolios.
Annabel Brodie-Smith, communications director at the AIC, says: “Income continues to be an enduring theme in the investment company sector. It’s interesting to see that income focused investment companies, including the infrastructure sector, which tend to be high yielding, are dominating issuance. Meanwhile, a number of investment companies are increasing their dividend partly to help address discount levels.”
AIC figures show that of the existing companies issuing new shares, a large proportion of these were income-orientated companies, with £490.4m coming from the high yielding infrastructure sector.
Of the two new trusts so far this year, one of them, Alcentra European Floating Rate Income, was also an income fund. The trust raised £81m when it launched in March – in the same month as this year’s second launch, that of the BlueCrest BlueTrend trust, which raised £165m.
In the most popular sector, UK High Income, on average funds managed returns of 1.06 per cent. The best performing fund, Aberdeen Smaller Companies High Income, returned 8.3 per cent in the first three months of 2012 and is currently yielding 5 per cent.
According to Aberdeen Asset Management, with 30 per cent of the net assets invested in bonds and preference shares, the portfolio provides relative protection from the volatility in smaller companies. The company added that its predominately blue chip bond and preference share portfolio coupled with its focus on quality companies allowed the trust to outperform. The net asset value (NAV) of the trust’s investment portfolio fell 5 per cent in June, however, and the trust is now trading at an 18.8 per cent discount to its NAV.