The timing of the Schroders British Opportunities investment trust IPO, in the midst of clarity over the US election result and positive coronavirus vaccine news, could see the launch succeed where rival UK equity products from Tellworth Investments and Sanford Deland Asset Management have failed over the last month.
On Tuesday morning, the planned investment trust announced details of its intention to raise £250m for UK high quality and growth companies in both public and private markets. Investors would have until 26 November to commit to the placing with the investment trust set to join the main market of the London Stock Exchange on 1 December, if its IPO is successful.
Schroders had revealed it was planning the trust launch in September, the same week Tellworth British Recovery & Growth published its prospectus for a UK multi-cap portfolio and Sanford Deland announced its intention to float the Buffettology Smaller Companies investment trust
Neither Tellworth or Sanford Deland were able to get their investment trusts off the ground proving the point made by many in the industry that raising cash for an unloved asset class would be an uphill battle.
The Buffettology Smaller Companies trust was on track to reach its £100m target before Prime Minister Boris Johnson announced details of a new tiered lockdown, which has now become an England-wide lockdown. The Brexit cloud also continues to hang over UK assets.
But Schroders may escape that fate due to positive vaccine news buoying investor optimism.
See also: Spate of contrarian investment trust IPOs after coronavirus drought stuns investors
Vaccine trial means investors can ‘see light at the end of the tunnel’
Willis Owen head of personal investing Adrian Lowcock said this week’s positive vaccine news will “absolutely make a difference” to investors’ willingness to back an IPO. “This combined with the US election out of the way has created some optimism and investors can now see light at the end of the tunnel with some opportunities for growth.”
Pfizer and German biotech company BioNTech yesterday shared interim results from their Covid-19 vaccine trial which suggested more than 90% efficacy, sending some UK equity stocks soaring up to 40%.
Numis also believed the vaccine could become a catalyst for improved investor optimism. “The Schroders vehicle has greater exposure to unquoted investments and it will be interesting to see if Schroders can attract demand given discounts have narrowed somewhat and yesterday’s rally on the positive vaccine news indicated that there is potential for a rotation in market trends,” it said in an analyst note.
The average peer-weighted discount on the AIC UK All Companies sector narrowed from 6.2% before the weekend to 4.4% by close of play Monday, after the vaccine announcement, according to data from the Association of Investment Companies and Morningstar. The discount on the UK Smaller Companies sector narrowed from 10.2% to 9.1%, while in the UK Equity Income sector discounts widened slightly from 4.6% to 4.8%.
The Schroders British Opportunities trust said it would be taking advantage of the pandemic to find opportunities and drive returns. Lowcock did not think they had missed the boat by launching after the positive vaccine news.
“The initial bounce back may mean some of the cheapest valuations in some companies have been missed, but the UK remains cheaper than US and other markets and is still largely unloved by global investors and that will begin to change when risks such as Brexit are realised or resolved.”
See also: Beaten down FTSE stocks jump up to 40% on promising Pfizer vaccine
Schroders will commit up to £20m to launch
Schroders British Opportunities has other factors in its favour too with Lowcock pointing to their “huge brand” and “strong distribution network”.
“They will have been working hard to make sure this launch is successful,” he said. “They also benefit from the fact that where there were three providers will similar products there is no only one. I think it will be more successful.”
A spokesperson for the investment trust confirmed the funds giant would commit up to £20m of internal money to the IPO.
There have been just three successful investment trust IPOs in the year to date with Nippon Active Value raising £103m in February, days before the coronavirus sell-off took hold, followed by a long dry spell before the £241m Home Reit and £100m Triple Point Energy Efficiency Infrastructure trust both launched in October.
Currently the only other investment trusts seeking to get off the ground are Downing Renewables & Infrastructure, which is seeking £200m, and the Round Hill Music Royalty Fund, which is seeking £375m.
The planned Schroders investment trust would be managed by head of equities Rory Bateman and head of UK and European private equity Tim Creed (pictured), who also works on the former Woodford Patient Capital Trust, now rebranded Schroder UK Public Private. The trust will seek to deliver 10% returns on the net asset value each year through a focus on companies with sustainable business models that may require additionally equity, particularly due to Covid-19, to maximise their growth potential or return to their previous growth trajectory.
It will invest in companies ranging from £50m to £2bn in size.
Schroders has denied there is any intention to merge the investment trust with the Schroder UK Public Private trust in future despite the similar investment universe of the two products.
See also: Schroders plans £250m UK public/private trust less than a year after landing Woodford mandate
