Dan Jones  

Tolerance of failure is in increasingly short supply

Dan Jones

What price consistency? It’s taken less than two years for the board of the BlackRock Income Strategies trust to rip up its overhaul plans and start again. Having moved from F&C to BlackRock in 2015, the vehicle is set to be handed over to Aberdeen next year. It may look rash, but I’d say it’s equally an acknowledgement of how high the stakes now are for the funds industry.

There are a number of company-specific issues – factors including the trust’s debt overhang have made alternative options, such as a return to capital to shareholders, difficult to pursue – but the underlying message is a simple one. Fund managers are under increasing pressure to perform, and the time they’re being given to prove their worth isn’t as long as it used to be.

This tighter timeline for portfolio managers stems from businesses’ recognition that their own window of opportunity is also shrinking. The board of the BlackRock trust, formerly known as British Assets, recognised there was little scope for an underperforming global equity vehicle to make a name for itself. Hence the shift last year to a multi-asset strategy under BlackRock’s stewardship, and now the latest move.

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Multi-asset, needless to say, is a growth area for fund managers – investors are keen to buy such products, particularly if there’s an income element. But shelf lives can be limited here too if returns underwhelm. The trust’s performance certainly did that: shedding 18 per cent so far this year.

In this context, one statistic from the open-ended world is telling: 73 per cent of global fund flows in 2015 went into products launched in the past 12 months. This trend has been apparent for a number of years, but it’s even more significant at a time when more and more fund managers are fighting over a dwindling amount of investor money.

Investment trusts can’t attract money as freely as their open-ended peers, of course, but the same principle applies: new strategies have a limited amount of time to get things right before interest turns elsewhere.

And despite investment companies’ base of ‘permanent capital’, boards still have discounts to net asset value to consider. The Income Strategies trust is currently languishing on a 14.7 per cent discount – the board may have concluded that investors had once again given up on the company.

A second change in two years may look reckless to some – and there is a risk that chopping and changing becomes a habit, rather than a last resort – but I’d imagine the trials of 2016 mean many more businesses are considering embracing a ‘more haste, more speed’ philosophy. 

Dan Jones is editor of Investment Adviser