Investment Trusts  

Property funds drive investment trust sales to record high

Property funds drive investment trust sales to record high

Demand for global and direct property investment trusts helped create a record six months for sales, according to data from the Association of Investment Companies (AIC).

Direct property investment trusts were thrown into the spotlight in the wake of the UK’s vote to leave the European Union, as an alternative to open-ended funds.

The uncertainty caused by the political event led to a wave of redemptions from investors seeking to exit the property market. Several open-ended property funds had to close to redemptions as they struggled to sell property to raise the cash needed.

Investment trusts do not face this problem as an investor seeking an exit simply sells the shares on the stock market.

Laith Khalaf, senior analyst at Hargreaves Lansdown, which does not include any investment trusts on its Wealth 150 list of favourite funds, said an investment trust structure partly mitigates the issues experienced in the property fund sector, because the secondary market in investment trust shares provides investors with liquidity that some open ended funds cannot deliver in periods of stress.

However there is still usually a price for that liquidity in the form of a widening discount, he said.

"The main benefit of the closed-ended structure for commercial property investment is from a fund management perspective," he said.

"With no outflows to worry about, managers can get on with their job without looking over their shoulder, and don’t have to carry a high cash weighting to meet withdrawals in the event of an exodus from the sector.”

He added the ability of investment trusts to trade at discounts or premiums means they carry a higher level of risk, and higher level of potential reward than open-ended funds.

The AIC data showed £514m of capital was used to buy investment trust shares in the first six months of the year.

The most popular sector was the AIC Global, with 15 per cent of the money going to that sector, with 13 per cent of the capital invested going to property trusts.

The AIC said the main adviser platforms used for investment company purchases during the second quarter of 2017 were Transact, with a market share of 40 per cent, Alliance Trust Savings with 24 per cent, Ascentric with 16 per cent and FundsNetwork with 8 per cent.

According to Hargreaves Lansdown the top ten most popular trusts on its platform are: 

City Of London Investment Trust

Edinburgh Investment Trust

Fidelity China Special Situations

Finsbury Growth & Income Trust

Foreign & Colonial Investment Trust

Murray International Trust

RIT Capital Partners

Scottish Mortgage Investment Trust

Witan Investment Trust

Woodford Patient Capital Trust

 

Mr Khalaf said: “Many of these names will be familiar, as investors understandably want their money run by managers with long and healthy track records, irrespective of whether they are investment trusts or unit trusts.

"Hence the top ten features trusts run by Neil Woodford (Woodford Patient Capital), Nick Train (Finsbury Growth & Income) and James Anderson (Scottish Mortgage Investment Trust). Scottish Mortgage Investment Trust has performed so well of late, it was admitted to the FTSE 100 earlier this year.”

 David.Thorpe@ft.com