This is in spite of the move providing investors with one of the best qualities of investment trusts, an independent board, while doing away with the worst, a large discount.
Long cited as a unique selling point for investment trusts, an independent board can opt to move a fund’s management to another group if warranted. Be it for performance reasons or if the manager leaves, the board can opt to change managers or follow one without investors having to switch portfolios.
It is this aspect that is unique in the roll-over Oeic option Electric & General has proposed, shareholders get the governance of a board but in an open-ended vehicle. However, it is also this very point – that it’s the exact same offering – people are most concerned about. It is also why commentators believe it may be a one-off event, unlikely to be repeated by either Oeic providers or investment trusts.
The main reason why Electric & General, which has been around since 1890, is being wound up is the discount on the vehicle is quite wide after several years of lackluster performance. Yet in the new Oeic, Electric & General retains the same manager, THS, and the same board of directors. So although the Oeic may be able to change managers, it appears unlikely they will do so. After all, if the directors were that keen to address underperformance, they could have changed the manager before now. They could also have given shareholders a roll-over option that involved a different fund manager. Yet they haven’t. Instead they renegotiated with the same manager to do the same job, only cheaper.
The new Electric & General Oeic is also to give shareholders voting rights. But then shareholders in Oeics have been able to vote. The difference is in investment trusts voting privileges can be much broader so the Electric & General offering is more an expansion of existing rights. However, again, this sounds positive on paper but in practice it has the appearance of a PR exercise. Oeic providers struggle as it is to get shareholder participation in votes so giving them more voting rights is unlikely to have much impact.
Operating under company law Oeics too have boards but it is the independence aspect that is a key differentiator. It may be a much loved aspect of investment trusts and it may even be an attractive concept for Oeic investors but the risks and hassle of implementing such a procedure on existing funds would far out weigh any potential benefits. With most Oeics owned and managed by their parent company, it is hard to see how or why in practice a provider would opt for a mechanism that could allow assets to leave. What would be the likelihood of M&G giving its Recovery fund an independent board if it meant that if Tom Dobell ever left the group, £7bn in assets could walk as well?
The independent board of Electric & General Oeic may be an unusual and welcome sight for open-ended investors but it is doubtful it will ever catch on in a meaningful way.
