OpinionDec 30 2015

Record highs and historically low discounts: AIC

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Record highs and historically low discounts: AIC

This year was a record breaking year for the investment company sector, with net fundraising at a high of £5.38bn, 57 per cent higher than the previous record in 2007.

Of course, this year’s largest ever UK-domiciled investment company launch, Woodford Patient Capital which raised £800m at launch, contributed to this total.

This year was also a record year for money raised on the secondary market with £4.81bn raised by existing companies issuing new shares. This compares to £3.61bn in 2014 and £3.85bn in 2013, the previous high.

All these launches indicate that demand for the sector was strong, so it’s no surprise that the average investment company discount reached another historic low this year too, hitting 2.4 per cent in October, before widening out slightly to 3.2 per cent by the end of November.

The investment company industry’s assets were also at record levels of £137bn in May, a significant increase on £122bn at the end of 2014.

It was also a year when advisers were paying closer attention to the sector, as the second quarter saw a record high of adviser and wealth manager investment company purchases on platforms.

Investment company performance has generally been more muted than the double digit performance investors have experienced in recent years, with the sector up 3 per cent to the end of November, following a tough second half of the year for markets.

Interestingly, the average VCT was up an impressive 7 per cent over the year.

In terms of trends this year, lots of investment companies have taken advantage of favourable interest rates and have taken out ‘cheap’ long-term debt.

The boards that have done this believe that they are obtaining attractively priced, fixed rate long-term debt.

Providing the companies can generate a total return of more than the cost of the borrowing, this should generate extra returns for shareholders.

Looking at long-term trends, advisers might be interested to know that some seven investment companies abolished their performance fee arrangements this year, whilst 15 companies changed their fee structure to benefit their shareholders.

All in all, despite difficult market conditions in the second half of the year, the investment company sector enjoyed a good year with strong investor demand.

Annabel Brodie-Smith is communications director at the Association of Investment Companies