The Tellworth British Recovery & Growth Trust is tapping into British patriotism to attract investors to unloved UK equities as it becomes just the second investment trust to IPO in the year to date.
The UK multi-cap investment trust, which will be managed by Paul Marriage (pictured), John Warren and Johnnie Smith, aims to raise £100m with the flexibility to reach £500m.
It will be just the second investment trust to launch in 2020 and the first to fundraise since the Covid-19 market sell-off took hold in late February, according to Association of Investment Companies data. The Nippon Active Value investment trust raised £103m mere days before the pandemic sent markets into a spin.
By comparison, eight investment companies were launched in 2019 raising £1.4bn. The preceding year raised more than double than amount with 19 new investment companies raising £3bn in the third-best year for the sector.
Nevertheless, AIC communications director Annabel Brodie-Smith said activity had been picking up in September with launches covering areas such as energy efficiency, social housing and undervalued UK opportunities.
“This diversity is a testament to the flexibility of the closed-ended investment company structure which can help investors access opportunities across a wide spectrum of different asset classes,” Brodie-Smith said.
UK multi-cap ‘isn’t a crowded space’ in investment trust universe
“This is a tough fund raising environment but the trust has a pretty modest target and a well-regarded management team,” Tilney managing director Jason Hollands said. “It is also the case that it has been quite some time since we last saw the launch of a UK equity multi-cap trust, so this certainly isn’t a crowded space.”
The portfolio will invest in 35 to 45 companies across the market capitalisation spectrum. The trust is marketing itself as a champion of British business with a press release announcing the IPO stating the company would “support UK businesses with equity, support UK employers and promote UK technology and innovation”.
The investment thesis is centred around three core pillars: British global leaders with differentiated products, strong global market positions and consistently high returns; British recovery stocks that are materially undervalued; and British technology that will target companies with high levels of intellectual property and a large addressable market.
Willis Owen head of personal investing Adrian Lowcock said it was difficult to pinpoint direct rivals to the investment trust because the mixture of recovery, global leaders and technology is “quite broad”.
“Ed Leggett at Artemis probably ticks a lot of boxes, while Merian UK Smaller Companies funds invest in technology and growth but also will include cyclical stocks and value opportunities,” said Lowcock.
The investment trust will have a fee of 0.65% on the market capitalisation of the trust up to £150m, which will reduce to 0.60% on assets after that level. Hollands described the fee as attractive.
There will be a discount mechanism that kicks in when the discount falls below 5% and the option for a shareholder exit if the net asset value underperforms the FTSE All Share over a five-year period.
‘I would expect there to be a lot of interest from DFMs and private client brokers’
Lowcock said for the right opportunity there is money available to plough into a new launch, like the Tellworth British Recovery & Growth Trust IPO.
But he said it remained to be seen whether appetite exists for a UK multi-cap portfolio.
“The UK market is cheap but with Covid lockdowns and Brexit overhanging the UK along with the bias towards cyclical, value stocks and the view on the UK is very mixed. But in times of crisis and uncertainty, there are always opportunities for those who can filter through the noise and do the hard work.”
He said domestic investors could be interested in such a portfolio even as international investors continue to shun the UK.
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“Marriage is a popular and highly regarded manager and has a strong following so I would expect there to be a lot of interest from discretionary fund mangers and private client brokers.”
Marriage and Warren launched the Tellworth UK Smaller Companies fund in November 2018 after their exit from Schroders. It currently holds £284.7m and has been popular with intermediaries, with AJ Bell introducing it to its portfolio several months after its launch and Fundcalibre granted it the Elite Radar rating in March.
‘We believe there is a desire from investors to back the UK recovery’
Tellworth argued UK equities are undervalued due to Covid and Brexit, in its press release announcing the IPO had kicked off.
“Brexit and the Covid-19 pandemic are causing fundamental shifts in the UK economy and markets across the globe,” Marriage said. “We strongly believe in the long-term future of the UK and that its flexible economy and focus on innovation will pave the way for an array of exciting investment opportunities at attractive valuations.”
Warren added: “We believe the UK government and businesses are united in focusing more and more on UK supply chains and self-dependence. Against this backdrop, we believe there is a desire from investors to back the UK recovery and put capital to work to support UK business and the economy as a whole.
“The investment trust structure not only allows us to use leverage effectively to enhance returns, but also to run a focused book with high conviction positions.”
