Investment Trusts  

Trust mergers a 'wake-up' call for open-ended funds

Trust mergers a 'wake-up' call for open-ended funds

The merger of the Scottish Investment Trust is a wake-up call for poorly performing open-ended funds, an expert has warned.

Kyle Caldwell, collectives specialist at Interactive Investor, said investment trust boards were becoming increasingly proactive but there was little evidence of this happening in the funds industry.

“So Scottish Investment Trust should be a wake-up call to the wider sector – if you can’t compete, it’s time for a fresh approach,” he said.

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On Wednesday (October 20), the Scottish Investment Trust announced its assets will be combined with those of the JPMorgan’s Global Growth & Income trust.

Although the fund does not have a formal benchmark, the board has previously compared the trust’s performance to the sterling total return of the MSCI All Country World index.

The MSCI index was up 5 per cent for the year to October 31 while the trust saw a share price total loss of 12 per cent, with a NAV total loss of 10.6 per cent.

This prompted a review of the board’s management.

Active year for mergers

Nick Britton, head of intermediary communications at the Association of Investment Companies, said 2021 has been an active year for investment trust mergers, with five either completed or in the pipeline so far, compared with just one in 2020 and two in 2019.

He added: “Mergers can be good for investment company shareholders by bringing down fees and creating larger, more liquid investment companies. 

“The increase in the number of mergers is a sign of boards being proactive and putting shareholders’ interests first.”

Mick Gilligan, head of managed portfolio services at Killik & Co said that although the merger would be a sad day for some investment trust nostalgists, for others it demonstrated the “Darwinian power” of the investment trust structure.

“A period of underperformance, partly due to a strong value bias and UK overweight, has led to a strategic review and [the merger being announced]. 

“In the open-ended world, an open ended investment company facing similar issues could quite easily limp on for years.”

Caldwell agreed, saying: “The investment trust industry has faced criticism from various commentators and analysts over the years for having too many small, sub-standard trusts. It’s a fair charge, but one which should be levelled at [open-ended] funds, too.”

JGGI, which is currently managed by a team including Helge Skibeli and Rajesh Tanna, launched in 1887 and was taken over by JP Morgan in 2000 following the acquisition of the trust’s manager Fleming.

The fund invests across value and growth firms, with exposure to around 50 to 90 stocks and a quarterly dividend which aims to pay 4 per cent of NAV annually.

Over the past three years it has been the top performer in its sector, the AIC Global Equity Income, returning 62 per cent while its sector returned 39 per cent.

In June, Alasdair McKinnon, the current manager of the Scottish Investment Trust, told FTAdviser gold mining stocks were a good hedge against inflation which is said is forecast to go above 4 per cent next year.