New launches find trusts exploring niche interests

Jenny Lowe

Figures to end-September show the investment company sector has raised an estimated £1.7bn in 2013, and while this is a significant amount – almost back to the fundraising levels seen before the financial crisis – there is a far more interesting trend materialising.

Instead of targeting the mainstream with trusts that focus on equities, bonds, income or growth, the majority of new launches have been more niche – concentrating on infrastructure or renewable energy, for example.

So much so that trade body, the Association of Investment Companies (AIC), last week introduced a new sector to its fold.

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The Sector Specialist: Infrastructure – Renewable Energy sector is already home to three trusts, all of which launched this year, raising a combined total of £690m at the time of their listings.

Among the largest new issues so far this year, according to the AIC, are Riverstone Energy (£760m), The Renewable Infrastructure Group (£300m), Greencoat UK Wind (£260m) and Foresight Solar (£150m).

According to the AIC, the last ‘mainstream’ investment trust was launched back in October 2012, when BlackRock raised £65m for its US Income investment trust and The Battle Against Cancer Investment Trust raised £207m.

While the latter does hold, what the AIC describes as, ‘unconventional’ assets, it is listed in the AIC Global Growth sector, so is technically ‘mainstream’.

So why all the niche launches?

Well, AIC communications director Annabel Brodie-Smith suggests these non-mainstream products are serving the purpose of offering an “alternative source of income” and in the latest research note from Winterflood Securities, head of research Simon Elliott and his team agree: “Yield is also an important characteristic of this year’s initial public offerings (IPOs),” it states.

The note also reports that of the 16 IPOs this year – covering a range of asset classes, such as aircraft leasing, onshore wind farms and specialist loan funds – only two are not targeting a dividend.

“If there is one shared characteristic, it is that these asset classes would be difficult, if not impossible, to access through an open-ended fund, due to their underlying illiquidity,” the report adds.

I would agree and in light of the regulatory requirements for advisers to look at all options available for their clients, the closed-ended sector could well be setting itself well and truly apart from its open-ended cousin and should therefore reap what it sows.

Jenny Lowe is features editor at Investment Adviser. Editor John Kenchington is away.