After a quiet spell, several new investment trusts are coming to market but some look badly timed.
Over the last six or so months, we've had a relative lull in new issues of investment trusts. Many existing funds have managed to raise extra cash by issuing more shares, but new funds have been much less common. I sense many managers with novel ideas have been holding back, waiting for any summer volatility to blow over. That's certainly reflected in the slew of new funds that have hit the market in the last few weeks with a few more circling.
New funds from big names
The most high-profile initial public offering (IPO) lately has been the Mobius Investment Trust (LSE: MMIT), the new emerging-markets (EM) fund from Mark Mobius and his former Franklin Templeton colleagues. This small- to mid- cap focused fund raised half its £200m target at launch.
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I'm sure this will prove popular with investors as Mobius is a well-known name, but I'm not convinced this is a well-timed new issue. I am still a big EM fan, but we could be in for a nasty six months, or even longer. That could mean people find themselves in the position of investors in the recently demerged Georgia Capital fund, which launched on high hopes and then fell by 25% in just a few months.
Arguably, the Mobius fund launch was overshadowed by the arrival of Terry Smith's Smithson Investment Trust (LSE: SSON). This global fund will invest in small- and medium-sized companies with a market cap of between £500m and £15bn, with an average of £7bn. The strategy is classic Fundsmith stuff: buy good companies; don't overpay; and do nothing. Like Mobius, Fundsmith has a great brand name and a loyal following. Investors clearly loved the idea behind this fund and it raised a record-breaking £822m.
Another recent IPO saw the AVI Japan Opportunity Trust (LSE: AJOT) raise a more modest £80m to invest in undervalued cash-rich Japanese equities. The idea is that there is a legion of small Japanese companies whose shares are very lowly rated, and largely ignored by local analysts. Many boast high levels of cash, and all that's needed is a catalyst to push the share price higher. This is probably the strongest idea for a new trust I have seen recently.
A genuinely original idea
In terms of funds circling for an IPO, keep an eye on Old Mutual (recently renamed Merian), which aims to raise £200m for its London Merian Chrysalis Investment Company. This will invest in a portfolio of minority stakes in unquoted companies that have growth rates substantially better than the average UK plc. The managers have a long track record of investing in pre-IPO businesses. This is a genuinely original investment idea with real long-term merit.
A smaller asset manager called Gresham House is also looking to raise up to £200m for a new energy-infrastructure fund focused on batteries connected to the National Grid. The Gresham House Energy Storage Fund is listing on the specialist funds segment of the London Stock Exchange, and targeting a net-asset value total return of more than 8% a year, with a dividend yield of up to 7% after the first year.
Last, but by no means least, is the Multifamily Housing real-estate investment trust (Reit). This will invest in regional UK private-rented flats and houses, with typical properties outside Greater London and let to private tenants at mid-market rents.
My concern is this launch feels a tiny bit late in the cycle. Residential property feels overvalued at the moment, though less so outside London. Consequently, I can't help but feel this fund might end up trading at a 5% to 10% discount after a year or so, at which point it could be a sensible long-term investment.
David Stevenson is a non-executive director in the Gresham House fund.
Activist watch
Trillium Asset Management wants Facebook to split the roles of chief executive and board chairman, both of which are held by co-founder Mark Zuckerberg, says David Meyer on Fortune. Zuckerberg should have to answer to someone independent for Facebook's recent scandals, argues Trillium, which will put its proposal to a vote at next May's shareholder meeting.
However, the firm's share structure makes this sort of action "all but meaningless". Its listed Class A shares have one vote each, but its unlisted Class B shares mostly held by Zuckerberg make up 18% of share capital yet come with ten votes each. Thus Zuckerberg controls nearly 60% of votes despite owning just 16% of shares.
Short positions... BlackRock struggles to attract cash
The amount of money put into BlackRock funds in the three months to the end of September fell to $10.6bn, the lowest quarterly total for two years, say Owen Walker and Robin Wigglesworth in the Financial Times. Redemptions were "especially acute" from institutional investors in passive management strategies, who pulled out more than $30bn.
Although these outflows were offset by the nearly $34bn that was put into the group's iShares range of exchange-traded funds, the poor overall result sent the asset manager's shares last week to their lowest level since May 2017. Investors are concerned about tighter monetary policy, geopolitical uncertainty and signs that global growth might be turning, said Larry Fink, BlackRock's chief executive and chairman.
The Standard Life Investments Property Income Trust, a closed-ended UK commercial property fund, has produced a total return of 73% over the past five years, beating the Association of Investment Companies Property Direct UK sector average return of 65%, says Emma Agyemang in Investors Chronicle. Its shares have mostly traded at a premium to net-asset value (the value of its underlying portfolio) over the past few years.
The trust's rating has since fallen sharply, and as of 15 October shares were trading on a discount of just more than 2%, according to broker Winterflood Securities. Although its dividend is not fully covered by income, the trust's rare discount means investors can buy into strong performance and an experienced manager while diversifying their income stream, says Agyemang.
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