Experts eye pensions reform move by Invesco trust

The board of the £196.9m investment trust, managed by Invesco, announced earlier this month it had decided to more than double its dividend payout for the year ending January 31 2015 – paying out 13.75p per share, a yield of 4 per cent.

The stated performance goal of the trust would no longer make the “pursuit of income… of secondary importance”. Instead, managers would focus on both income and growth, the board said.

These changes have been implemented by Invesco to make the trust more income-focused as it bids to target new investors in light of the pension freedom reforms coming into effect in April.

The reforms, which remove the requirement to buy an annuity at retirement, are expected to lead to a deluge of new investors as legions of retirees are set to take charge of their pensions savings.

Investors have already reacted positively, with the trust’s discount to net asset value – a measure of the demand for its shares – narrowing from 12.46 per cent at the end of February to 7.85 per cent, data from the Association of Investment Companies shows.

Members of the asset management industry have been plotting how best to take advantage of these pension changes.

Therefore, the actions of the Invesco trust’s board would be monitored by its peers to see if this was one way to tap into the demand, industry experts said.

Simon Elliot, head of research at Winterflood Securities, said: “Others will be looking quite carefully at the changes to this trust and if it’s a success they may consider it.

“It will be interesting to see the reception of a trust that is trying to manufacture and develop yield.”

Nick Greenwood, manager of the CF Miton Worldwide Opportunities fund – which invests in investment trusts –agreed and said he suspected the Invesco trust would not be the last to raise its payout target.

The development has not taken place in the most obvious sector as the average yield on a UK smaller companies trust is still relatively low, and investors tend to think of smaller companies as a growth investment.

Investec analyst Paul Locke said some smaller company trusts would “remain outright growth funds” and he did not think “simply raising the dividend” was a “remedy” to spur demand.

However, in spite of his concerns he said: “I can see other funds going down this route and other actions, such as increasing the regularity of dividends.”

Another concern for market participants was the board’s decision to spend £600,000 from its reserves to help pay for the dividend.

John Newlands, head of investment company research at Brewin Dolphin, said the decision “concerned him”. He noted that paying a dividend partly from capital meant “there is bound to be some effect on the long-term growth potential of the trust”.

Industry to monitor progress of revamped British Assets trust

The Invesco Perpetual UK Smaller Companies trust is not the first closed-ended fund to be changed in order to tap into demand from income-hungry investors.

Earlier this year BlackRock took on the management of the British Assets investment trust, rebranding it as the BlackRock Income Strategies Trust and changing its investment process to a multi-asset income approach.

Like the Invesco trust’s move, analysts said other managers would be watching the success or failure of BlackRock’s trust to judge whether they should move to a similar style.

Winterflood Securities’ Simon Elliott said: “These proposals mark an important inflection point in the evolution of investment trusts and the sector’s attempts to meet changing investment needs.

“We suspect many across the industry will monitor British Assets’ progress carefully and it seems likely that others may consider following its lead.”