Analysts are sizing up a resurgence for investment trusts in 2017, as asset managers turn to closed-ended funds for mainstream as well as alternative investment strategies amid growing demand from buyers.
Investment trust issuance in 2017 is already up 75 per cent on the previous year’s levels, reaching £690m as of the end of February compared with £395m last year, according to the Association of Investment Companies (AIC), and secondary market issuance is on the rise, too.
Much of this can be pinned on the turbulent market conditions seen in early 2016, but the figure matches 2015 levels and more fundraisings are tipped to follow.
Fund buyers’ demand for alternative sources of income has seen them turn to trusts for esoteric opportunities in recent years, while mainstream trusts are gradually being made available via adviser platforms.
Two major fund managers, Stewart Investors and Jupiter, intend to launch a global small-cap and a emerging market income strategies respectively. Similarly, Downing is to launch a UK micro-cap trust mimicking its open-ended fund's strategy.
Panmure Gordon investment funds analyst Charles Murphy said: “We expect more traditional managers and funds to raise new capital, and highlight that Henderson International Income has announced a C-share [issue] and that Polar Capital Global Healthcare has announced a re-organisation that includes raising additional equity capital.”
Monica Tepes of Cantor Fitzgerald said 2017 showed signs of being an “above-average” year, while Anthony Leatham of Peel Hunt added: “In an environment where there is willingness and ability to take more risk, I think the appetite for equity strategies should increase.”
Alternative trusts also remain in the forefront of buyers’ minds. The average price premium to net asset value for infrastructure investment companies’ shares, for example, is 15.9 per cent.
Charles Cade, head of investment company research at Numis, said: “We expect to see significant issuance by the major infrastructure funds in the next few months.”
Plenty of challenges remain for the mainstream trust sector if it is to reverse course. The typical equity-focused investment company trades on a discount of around 5 per cent and achieving a feasible scale remains tricky.
The Threadneedle UK Select trust announced plans to merge with Henderson High Income last week, while one company targeting the riskier end of the market cap spectrum, Guinness Oil & Gas Exploration, has been forced to scrap fundraising plans.
Mr Cade said secondary issuance from equity trusts would be focused on “successful funds” such as Finsbury Growth & Income, Scottish Mortgage and City of London.
But Mr Murphy suggested that the Jupiter and Stewart Investors vehicles could have an unintended effect on the sector. “If they’re really unlucky, they will just remind people [of the asset class] and investors will buy everybody else’s trusts trading at a discount.”