Trust issuance yet to recover in 2016

Trust issuance yet to recover in 2016

Investment trust issuance remains considerably lower than 2015 levels, new figures show, with a post-Brexit bounceback yet to emerge despite buoyant equity markets.

September saw £306m of new issuance compared with £247m in August, but the figure is far below the September 2015 total of £605m.

Despite a surge in July, year-to-date issuance is 53 per cent lower than the same period in 2015, though last year’s fundraising figure was inflated by the launch of the Woodford Patient Capital trust. Secondary issuance is down 13 per cent.

In a change from last year, infrastructure vehicles have taken the lion’s share of fundraising, with four such trusts raising capital in September. Alternative fixed income strategies have also been stronger in coming to the market.

Data from Winterflood showed equity-focused trusts accounted for just 16.9 per cent of new issuance in the first nine months of 2016, compared with 29 per cent over the same period last year. 

Infrastructure – this year’s standout with 44.3 per cent of new issuance – only accounted for 12.4 per cent in 2015.

Indeed, brokers have noted the fundraising that has taken place this year has been confined to a relatively small number of trusts in a select number of sectors.

Winterflood analyst Innes Urquhart said September’s slight uptick did not take away from the fact that it had been a difficult year for trust fundraising, particularly for those focused on traditional asset classes.

“January was a difficult month for equities, and then there was the run-up to the Brexit [vote],” he said. “There has been a strong income focus that is similar to last year, but where there are funds raising money it is regular taps of issuance.”

Sarah Godfrey, an investment company analyst at Edison, noted that while the value of both primary and secondary issuance was down, the increasing concentration of funds issuing was a concern for the wider sector.

Edison figures showed 41 investment trusts were involved in secondary issuance above £10m between January and September 2015, whereas only 31 did so in the same period in 2016. However, while a multitude of alternative trusts raised money in both periods, only two equity trusts – City of London and Finsbury Growth & Income – featured on both rankings.

Ms Godfrey said: “While there are lots of mainstream equity funds on the 2015 list, there are far fewer on the 2016 list.

“One thing [trusts raising capital] all have in common is 6 per cent plus yields. This showed a slight wariness towards general equity markets and how they have been inflated by cheap money.

“We will see new issuance, but I don’t see it happening particularly soon. There are still plenty of things to worry about so that you won’t see mainstream trusts moving to a premium,” she added.

Mr Urquhart said the possibility of new issuance bringing overall levels back in line with that seen in recent years would ultimately depend on market conditions.