Advertisement

Investment trusts - when big is better

The retail distribution review will be good for investment trusts - but not for all of them. With the tendency for independent financial advisers to ignore smaller trusts, it makes sense for some of them to merge.

When the idea thatcommission paid to investment advisers by unit trust companies was to be outlawed by the Retail Distribution Review(RDR) was first announced, the investment trust industry was thrilled. Why? Becauseindependent financial advisers(IFAs) tended to ignore investment trusts even if they had performance histories significantly better than their equivalent unit trusts on the basis that they didn't get paid for suggesting them to clients.

Advertisement - Article continues below

The hope was that when they didn't get paid for recommending unit trusts either they might become a little more even-handed. That looks like it will happen (surveys regularly show IFAs getting keener on investment trusts).

But it doesn't mean that the whole industry will benefit equally. There is bound to be a rush towards the very big, very liquid and very good trusts Neil Woodford's Edinburgh Investment Trust being the obvious one to point to here. But what of the small trusts?

If they have under £100m under management they generally aren't very liquid ie, it isn't that easy to buy and sell them. They also tend to come with large discounts, something that can put both big and small investors off. With this in mind I am interested to see some movement at the Troy Income and Growth Trust.

Advertisement
Advertisement - Article continues below

I interviewed its manager Francis Brooke in the magazinea couple of months agoand we are fans both of Troy as a whole and of this trust it is up over 100% in the last three years against a rise of 50% in the FTSE All Share. But it is still a small trust.

Advertisement - Article continues below

Assets under management are currently around £80m - £20m short of the level that IFAs think they need a trust to be before they will put their clients into it. That's about to change. The Albany Investment Trust announced today that it is to reconstruct itself, giving investors the opportunity to roll their money into TIGT without incurring capital gains tax.

The Grampian Investment Trust (which Troy already runs) has announced the same. Albany currently has about £30m of net assets and Grampian has about £10m. Assuming the majority of shareholders accept the rollover and why shouldn't they given Brooke's excellent performance? this will push TIGT nicely over the £100m level.

This is pretty much good news all around. Current TIGT investors will be pleased at the rise in liquidity that comes with a rise in the size of the fund and by the fact that the fixed costs as a percentage of their holdings will fall, while Albany and Grampian shareholders will be getting out ofsmall funds trading at nasty discounts into a bigger one trading at par or a premium. TIGT has been the best performer in the income and growth sector in the last three years. Albany has been the worst. It all makes sense.

Advertisement
Advertisement

Recommended

ESG investing provides shelter in the storm
Funds

ESG investing provides shelter in the storm

Funds focusing on environmental, social and governance (ESG) issues proved resilient during the market slump.
23 Jun 2020
Asian income stocks: where to find the continent's top money machines
Share tips

Asian income stocks: where to find the continent's top money machines

International dividends shouldn’t only mean companies in the US or Europe – the Far East has plenty of big payouts to offer. Cris Sholto Heaton looks …
22 Jun 2020
Could an ill wind hit renewable energy funds?
Renewables

Could an ill wind hit renewable energy funds?

Infrastructure is a good investment – but watch out for hidden risks, particularly in renewable energy.
9 Jun 2020
Precious metals will keep shining – buy these funds to take advantage
Gold

Precious metals will keep shining – buy these funds to take advantage

Data on volatility suggests that a V-shaped recovery may not happen, so hold gold or silver.
1 Jun 2020

Most Popular

Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020
Should you take advantage of the UK’s new breed of domestic holidaymakers?
Buy to let

Should you take advantage of the UK’s new breed of domestic holidaymakers?

With Britons choosing to holiday in the UK this year, the owners of the country’s holiday cottages are cleaning up. Should you buy in, too? Merryn? So…
10 Aug 2020
The pound has been trending higher against the dollar – will it last?
Sponsored

The pound has been trending higher against the dollar – will it last?

Sterling has been rising against the dollar. Dominic Frisby sets his trend lines in the charts to see where the pound is heading next.
10 Aug 2020