In the view of Ian Sayers, director general of the AIC, this demonstrates the current strong demand for investment companies.
Averages hide wider spread
He said: “A strong period of performance, the dividend track record, access to specialist asset classes and the impact of the retail distribution review have all come together to boost interest in investment companies. Of course it’s important to be aware that while the average discount is at a record low, discounts vary across the industry. Investors need to have a balanced portfolio and research potential investments thoroughly.”
The news follows hard on the heels of this week’s announcement by the AIC that it has renamed five of its sectors to match those of the IMA in order to go head to head with open-ended funds.
“Investment trusts can build far more conviction into their portfolios and can sit with things until it’s right to move on,” said Nick Greenwood, who runs the CF Miton Worldwide Opportunities Fund, a fund of closed-ended vehicles.
However, Greenwood believes the AIC’s figures have been skewed by discounts closing on the very largest investment trusts as he still sees wide discounts on many smaller trusts.
Smaller demand to grow
“There’s been a shift in the wealth management industry,” he explained. “The natural buyers of investment trusts have been subsumed into larger organisations, and because they’re becoming so vast and standardising processes they can only buy the larger funds. So the top 25 to 50 trusts are getting all the demand.”
Greenwood predicts a further shift at some point where managers will set up more start-ups and boutiques and demand for smaller investment trusts will rise again.
There have been some wide fluctuations in the average investment company discount since 1970, with a high of 41.5% in October 1976 and February 2006’s previous low of 3.5%. In the late 1980s and early 1990s demand for investment trusts increased due to a combination of savings schemes, personal equity plans and increased promotional activity, said the AIC.
In January 1994 the average discount had narrowed to 4% but demand did not keep up with new launches so by April 1996 the average had again widened to 10%. Since 1999 investment companies have been able to buy back shares and this has helped them control discounts.
