Closed-end fundraising falls on deaf adviser ears
Although advisers’ three most popular fund platforms – Cofunds, Fidelity FundsNetwork and Skandia – are not offering comprehensive access to investment trusts, popularity of the closed-end vehicles continues on an upward trajectory.
According to Winterflood Investment Trusts, the first six months of 2012 saw £1.7bn raised in new issues, up £400m when compared with the first half of 2011.
Simon Elliott, head of research at Winterflood Investment Trusts, says: “At this time of the year, we would normally expect fund raising to be quietening down ahead of the summer. However, this year there are a number of funds out marketing.”
BlueCrest BlueTrend and Carador Income are among the trusts trying to raise new money, according to Winterflood research – the former with a £165m IPO [initial public offering] and the latter with a C-share issue – while the world’s largest asset manager BlackRock is also launching a new North American Income trust.
In addition, small-cap veteran Gervais Williams, managing director at Mam Funds and joint fund manager of the Diverse Income trust, looked to double the size of his vehicle with a £50m C-share issue, which was announced in June – although the trust later raised £20m less than he had initially hoped.
“The current climate suits the trust’s investment style of investing in companies with strong balance sheets and good and growing income. With investment trends changing beyond the credit boom, a multi-cap approach offers greater scope for diversification and selecting for intrinsic value. A similar strategy was effective beyond the 1929 credit boom,” Mr Williams says.
“Dividends are likely to represent a larger element of shareholder return in a low-growth environment. Smaller companies have more room to show meaningful growth. They often have stronger balance sheets that could support faster dividend growth, and are increasingly under-researched, under-owned and undervalued.”
However, in spite of the success of fundraising so far this year, Mr Elliott warns that conditions remain challenging. As a prime example he highlights the recent postponement of the F&C Barrow Hanley US trust launch.
“F&C Asset Management will be very disappointed that demand for the IPO of its US equity income fund failed to reach the requisite level. Partnering with a third-party manager represented a considerable departure for the firm, and the marketing campaign generated considerable media interest,” he says.
“However, equity market conditions remain difficult, and this would have presented a considerable headwind in marketing to the potential shareholding base of wealth managers and private client stockbrokers.
“The outcome of the BlackRock North American Income trust’s IPO will be interesting, particularly following F&C’s experience. Similarly, the launch of a new split-capital investment trust, Strategic Equity Income, will show how much demand there is at present for geared equity exposure, albeit one with a high yield.”