May has proved to be a busy month in the investment world: with a wave of corporate activity, alongside a crop of fund manager departures.
Turbulent markets have been behind many of these moves: with two more income funds being kicked out of their sectors, and five commercial property funds altering their pricing in a bid to stem outflows.
But some of this corporate activity is the result of investment companies looking towards longer term horizons: Axa for example has sold its investment and pension business to Phoenix holdings, while two of the UK’s largest global investment trusts - Alliance Trust and RIT Capital Partners - confirmed they were in merger talks.
Alliance Trust in Merger Talks
RIT Capital Partners (RCP), the investment trust chaired by Sir Jacob Rothschild, confirmed it had made an informal approach to Alliance Trust (ATST) about a possible tie up.
RIT said discussions were at a ‘preliminary’ stage.
This news was clearly welcomed by many shareholders in the beleaguered Alliance Trust, with its share price rising on this news.
The trust has had a turbulent 12 months culminating in the departure of its former chief executive Katherine Garrett-Cox last year.
A statement from Alliance Trust said it was currently undergoing a strategic review, “to explore all options available to it for the long-term benefit of shareholders”. It said it will look at any formal merger proposal from RIT as part of this review.
Both of this substantial investment trusts have a global remit, and together manage more than £5 billion. Alliance Trust, which was formed almost 130 years ago manages around £2.7 billion of assets, while RIT Capital Partners launched in the late 1980s has £2.4 billion.
AXA sells Savings and Pensions Business to Phoenix
AXA (AXA) is selling its UK investment, pension and insurance business to Phoenix Holdings (PHNX) in a £375 million deal.
Phoenix, which specialises in running closed life and pension funds, will take over both the AXA Wealth and SunLife brands. These have more than £12.3 billion in assets and 900,000 individual policies.
AXA said this was part of its long-term strategic plan to exit the UK savings market. The French-based insurer said it is concentrating on emerging markets which are seen to have more growth potential for savings. However, the company will continue to offer health insurance and asset management within the UK. It’s multi-manager arm, Architas, is not of this deal and will become part of AXA’s global life & savings division.
Equity Income Fund Exits
Two more funds were kicked out of the Investment Association’s UK Equity Income sector this month, for failing to meet its yield requirements.
The latest two casualties were Evenlode Income, with £524 million assets under management, and the £127 million Montanaro UK Income which was the top-performing fund in the sector last year.
This brings to total of income funds expelled from this sector to 20 – including funds run by Invesco Perpetual, Henderson, Schroders and Rathbones – increasing pressure on the IA to reform its current guidelines.
The majority of these funds have been ejected from this sector for failing to meet its requirement to deliver an income that is 110% of the FTSE All Share index over a rolling three-year period. Montanaro was ejected through for failing to deliver 90% of the FTSE All Share yield over one year.
Hugh Yarrow, co-manager on the Evenlode fund criticised the IA’s “arbitrary” parameters on the Equity Income sector. He said this move and added the move would not affect the managers’ approach.
Charles Monanaro, manager of his eponymous fund, was also highly critical of the IA’s “bizarre” decision that had seen his fund jettisoned from the sector. He pointed out that if the starting NAV of the fund was used to calculate its yield, rather than then final NAV then it would have met the IA’s requirement. It claimed it was being punished for delivering growth to investors.
The IA is now consulting with its members over a possible change to these criteria.
Commercial Property Funds Hit by Brexit Fears
Five commercial property funds run by Aberdeen, Henderson, M&G, Threadneedle and Standard Life Investments have altered their pricing in a bid to stem outflows.
A sudden spike in the number of sellers have caused these fund managers to move from an “offer” to the lower “bid” or “mid” price – effectively reducing the value of investors holdings by between 5% and 6.25%.
This moves comes amid fears of investors taking profits ahead of the Brexit vote. Commercial Property funds have enjoyed good returns in recent years, but there are a fears that if the UK votes to leave the EU this will damage the buoyant property market in the South East, and so impact on returns in these funds.
The funds making these changes are all ‘bricks and mortar’ funds. Managers argue that it is fair that sellers should bear the cost of property disposals if the number of people selling units exceeds the number of buyers by a significant margin.
Fund Manager Departures
There were a number of fund manager moves this month. Leigh Harrison, the head of UK equities at Columbia Threadneedle is retiring from the industry, and will leave the company at the end of June.
His role will be taken by Richard Colwell, who took over from Harrison as lead manager on the company’s £3.2 billion Equity Income fund in September.
Meanwhile, Jupiter’s Simon Somerville, manager of its Japan Income fund, is to leave the business after 11 years. He will move into institutional fund management. His current deputy, Dan Carter, will take over the running of the fund.
There were more fund manager moves at Miton Group. The company announced that Andrew Jackson will be the new manager on its successful CF Miton UK Value Opportunities fund.
He was previously manager of the UK Equity Growth fund at Eden Tree Investment Manager, formerly known as Ecclesiastical. He will start at the end of June, when the current managers of this fund — George Goober and Georgina Hamilton — move to Polar Capital.
