Since the beginning of 2013, investment trusts have issued some £156 million in new shares, allowing new investors to claim a stake in highly sought-after trusts and allowing long-time investors a chance to put more money into their favourite funds.
This wave of new issuance came predominantly from funds where shares have been trading at a premium to their net asset value.
Some may be led to believe that the money surging into investment trusts is a direct result of the new Retail Distribution Review. They may believe that the new RDR rules, which were implemented on January 1, 2013, immediately raised awareness about the benefits of investment trusts amongst the investing public. But this is less about the introduction of RDR and more a result of solid management delivering good performance.
New Shares Issued by Personal Assets Trust...
Personal Assets Trust (PNL), which carries our Morningstar Gold analyst rating, is one investment trust that has been performing well and recently issued new shares. Since Sebastian Lyon took over as the investment adviser of this trust in March 2009, the fund has nearly always traded at a premium to its NAV. This premium is partly due to Lyon’s track record at his own Troy Trojan fund and thus there is the expectation of good results, but it’s also due to a strong and proactive board and the fact they give clear guidance—and stick to it. This board has proactively issued shares to keep this premium under control and in January alone they issued more than £4 million in new shares. The fund has also benefited from the soft closure of Troy Trojan. So anyone who’s done their homework on Lyon knows there are more ways to access his investment skills than just one fund.
.... Murray International and Jupiter European Opportunities
It’s a similar story at the Gold-rated Murray International (MYI). The board issued shares worth more than £13 million in January. Manager Bruce Stout’s links with this fund pre-date Aberdeen’s as he was with Murray Johnstone at the time of its acquisition by Aberdeen in 2000. Long-term performance at this fund has been solid, both in terms of capital gains and income flow.
Another stand-out is the Jupiter European Opportunities Investment Trust (JEO), where the board has issued shares worth roughly £13 million. Like MYI and PNL, this fund carries our Gold rating. Alexander Darwell has established a highly successful track record in the management of European equities.
Are These Trusts Truly ‘Closed-Ended’?
Granted, the fact that these funds can issue more shares means we can debate whether investment trusts are truly “closed-ended” in nature. But there is a stark difference when compared with open-ended funds. The fund isn’t subject to asset bloat purely because of market trend or hot money. So investors are protected from the impact of massive inflows and outflows and the damage they can cause, particularly in the more illiquid areas of the market, such as small-caps. The board also has full control of whether to issue shares and can work with the manager to ascertain the right time, whereas in an open-end fund the manager is simply given a cash figure on any given day.
Indeed, if we look at those funds which have issued shares throughout January, there is a spread across geographies, so it’s not so much about chasing an investment trend as acknowledging strong performance from a strong manager or team. That’s not to say these are the sole reasons for a fund trading at a premium to its NAV, but there’s a lot to be said for keeping calm and carrying on with business as usual.
