Analysts warn of ‘two-speed’ universe for trusts

Investment trust analysts at Winterflood Securities have warned a chasm is emerging between large, liquid investment trusts and their smaller rivals.

In a report on trusts’ returns in 2013, the analysts said the liquidity of investment trust shares – the ease at which they can be sold off at attractive prices when investors want to pull their money out – “remains an issue”.

“With some wealth managers already stipulating their preference for funds with market caps above £250m, we believe a ‘two-speed’ universe may develop with the large becoming larger and smaller funds treated as orphans,” the report said.

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“Where value opportunities exist, it seems likely they will be at the smaller end of the trust universe.”

There are currently 100 investment trusts with market values of more than £250m, according to data from the trusts’ trade body the AIC.

The remaining 197 trusts covered by the AIC range in size to as small as £1.6m, with players such as BlackRock’s Throgmorton Trust just falling into the smaller camp.

Elsewhere in the report, the Winterflood analysts said fears that trusts’ discounts had narrowed to the point where there was little value in the sector could be misplaced.

“We believe the extent of the downside is reduced by the yields that many funds generate as well as discount control mechanisms,” the report said.