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The new boom
Last week we discussed how a quiet summer could yet turn into a more dramatic autumn for asset allocators. The same notion seemingly applies to the investment trust universe, according to Winterflood.
The broker predicts that a sleepy August will ultimately prove to be “the quiet before the storm”, and anticipates another wave of issuance before the year’s out. With £8.7bn worth of fundraising already achieved this year, the annual record of £9.8bn set in 2017 is likely to be comfortably surpassed.
While there have been some IPO disappointments, the appetite for a variety of alternatives vehicles continues to increase. Blame for IPO failures is typically assigned to wealth managers’ reluctance to back mainstream investment trusts, but there’s no sign of caution when it comes to alternatives.
In particular, infrastructure trusts continue to grow in popularity. Over a third of the funds raised this year have come from this sector, per Winterflood, and renewable energy infrastructure is leading the way on this front.
Indeed, there are now almost as many trusts operating in this space as there are in the likes of the global equity or UK equity income sectors. And all 14 of the trusts in Winterflood’s renewable energy sector currently trade at a premium to NAV.
This is an income story as much as anything else. Infrastructure isn’t a bulletproof investment for DFMs – listed vehicles have lagged peers since the start of the pandemic, and broker Stifel is among those to have recently taken a dim view of renewable energy trusts in particular. But with the vast majority of these strategies still offering bumper yields, selectors' interest looks here to stay.
Holding the fort
The departure of managers as experienced as James Foster and Alex Ralph would usually be cause for concern for fund holders.
In the event, Artemis’s hiring of several then-Kames managers in 2019 gave it plenty of readymade replacements - though Stephen Snowden, newly promoted to head of fixed income, won’t be running the £1.8bn Strategic Bond fund himself.
Those fund selectors who opt to take a step back and assess how new managers Juan Valenzuela and Rebecca Young perform have plenty of other options available in theory.
Our fund selection database shows UK wealth managers have used more than 50 different strategic bond funds in their portfolios over the past three years.
But there is a degree of crowding on display: seven funds - those run by TwentyFour, Jupiter, Janus Henderson, Artemis, Schroders, Baillie Gifford and Allianz – account for 50 per cent of all strat bond holdings.
Recent history suggests backing a new manager can pay off. As it happens the Aegon Strategic Bond fund found favour with the judges of the FTAdviser Investment 100 Club awards this summer. Managers Alexander Pelteshki and Colin Finlayson have produced good performance in the absence of their higher-profile former colleagues. Not every exit is destined to be a disaster for those who stay put.
Is it too early to start thinking about Christmas? Not for retailers, for whom supply issues are proving increasingly threatening.
As the scope of product shortages continues to spread, companies are already fearing the worst as they attempt to stock up ahead of the holiday period. The FT adds that even those for whom Christmas is not a particularly big moment in the calendar, like Kingfisher, are concerned about the months ahead.
Fund managers, for their part, say the reverberations could extend further than retail. It’s one more issue to consider for those tasked with either buying companies or buying the funds that hold them.