The big investment news this month has been the proposed merger between Standard Life and Aberdeen Asset Management. But March has been a busy month, with a handful of fund launches and a wave of investment trust announcements. In addition, up to 20 equity income funds are expected to be re-admitted the Investment Association’s Equity Income sector, after the organisation announced a long overdue rule change.
Merger to Create New Fund Management Force
Standard Life and Aberdeen Asset Management a confirmed they are in merger talks. The current chief executives of each firm, Keith Skeoch and Martin Gilbert, would become co-chief executives of the new larger company.
This proposed consolidation follows similar moves by Henderson and Janus last year.
The merger is likely to mean job losses. Analysts have predicted that around 1,000 jobs could be at risk, mainly in the back-office, IT and sales teams.
Standard Life’s main business remains in the life and pensions market, but there is an overlap between the funds run by Standard Life Investments and Aberdeen Asset Management. Industry experts have speculated this could lead to further consolidation in the asset management sector.
Rule Change for Equity Income Funds
The Investment Association has announced it is relaxing the income requirements for funds in its UK Equity Income Sector. Currently funds have to achieve a yield in excess of 110% of the FTSE All-Share index. Funds that fail to do this over a three-year rolling period are booted out of the sector.
But from next month the yield requirement will fall to 100% of the FTSE All-Share. However if a fund fails to generate a yield of 90% of this index in any one year it will be automatically excluded. Funds must also have at least an 80% exposure to UK equities.
This rule changes comes after a number of large and highly regarded income funds were jettisoned from this sector. Among their number are the £1.3 billion Rathbone Income fund, the £1.7 billion Schroder Income fund and the Invesco Perpetual Income and High Income funds, which together hold more than £16.5 billion of investors’ money. There had been concerns that funds chasing this high yield to stay in this sector, could damage the longer-term investment returns on the fund.
It is expected that more than 20 funds which had failed to meet this target will be included in this sector again within the coming months.
Fidelity Closes Popular Asian Fund
Fidelity has announced they will soft close their Asian Smaller Companies fund on April 3 as it is at capacity.
The fund, which has a five star performance rating from Morningstar, has seen strong inflows from investors over the past year. As of the end of January, it had assets under management of £437 million. It has been managed by Nitin Bajaj since September 2013. Fidelity said it will stop marketing this fund. New investors may be added to a queue to invest at a later date.
A spokesman for the company said: “Fidelity Asian Smaller Companies has experienced strong interest from investors on the back of strong performance.
“We are keen to ensure that the rapid growth in the fund’s assets since April 2016 does not limit our ability to compound client money at our desired rate of return, and with it, the strong performance track record that it had achieved.”
Scottish Mortgage Cuts Fees
Scottish Mortgage (SMT), the Gold Rated global investment trust, has entered the FTSE 100 for the first time. This is the first time an investment trust has appeared in the blue-chip index since Alliance Trust (ATST) crashed out six years ago. The trust is run by Baillie Gifford fund managers James Anderson and Tom Slater.
It is one of the top performing trusts, with shares up by 42% in the last year. It said that it will reduce its annual management charges to reflect that increased economies of scale that this change will bring. It’s annual management charge will drop from 0.45% to 0.3% on the first £4 billion, then to 0.25% on any assets above this.
Alliance Trust Shareholders Approve Revamp
Alliance Trust shareholders have voted through proposed changes to the beleaguered trust, which will see it changes its investment mandate to a multi-manager structure. In addition, shareholders voted to buy back the shares of activist investors Elliot Advisor, which currently have almost a 20% stake in this trust. This month also saw Alliance Trust publish its annual results for the year ending December 2016.
Shareholders saw a total return of 21.5%, below the 29.4% delivered by its benchmark MSCI AC World Index. However, the dividend paid to shareholders increased to 12.774p, a 16% increase on the year before, and the 50th consecutive year that the trust has increased the dividend paid to its shareholders.
Morningstar fund analyst David Holder said regarding the new structure “the proof of the pudding will be in the eating and in Alliance Trust’s case, it has been “jam tomorrow” for too long”.
“The proposed best-in-class, concentrated global multimanager approach bears some similarity to that used at Witan and has merit if well executed,” said Holder. “However, we would dispute the chairman’s view that this is an “exciting and differentiated” approach. Currently there is limited visibility on the performance of global strategies advised upon by Witan, and we await much greater detail as to the nature and implementation of the proposed new investment strategy.”
Healthcare Trust Defers Wind-up
Polar Capital Global Healthcare Growth & Income Trust (PCGH) has proposed switching to a growth mandate, and deferring its winding-up date. It had been due to wind up in January 2018, but they have now added a further seven years until January 31, 2025.
At the same time it is proposing to a more growth-orientated focus. This will mean shareholders receive a lower dividend, and the name of the trust will change to Polar Capital Global Healthcare Growth.
As part of this transformation the trust will issue new shares, while also offering a tender for existing shareholders to buy back some or all of their holdings at current net asset value.
These changes are still subject to shareholder and regulatory approval.
New Emerging Market Debt Fund
Invesco Perpetual is launching an emerging market debt fund. It describes this as a “natural extension” to the fund manager’s current offering in this asset class. The fund will be managed by Stuart Edwards and Asad Bhatti.
Edwards already manages the Invesco Global Bond and the Invesco Perpetual Global Bond fund, which have strategies in developing and emerging market bonds. The fund will have an ongoing charge of between 0.65% and 0.95%, depending on share class. The minimum investment will be £500.
New Gender Diversity Fund
AXA Investment Managers have launched a gender-diversity focused fund, which invests in companies that promote ‘best practice’ on this issue. The AXA World Funds MiX in Perspectives fund will be managed by Julie Lamirel.
This fund has a global remit. It will operate on an unconstrained basis and will look for companies which aim to create a positive social impact related to diversity and inclusion to generate long-term equity returns. The fund will have an ongoing charge of 0.77%.
