This article first appeared in Investment Adviser and was written on January 4, 2011, since which time Henderson Global Investors has agreed to purchase Gartmore Group.
Last year was an exciting one for closed-end funds. It was back in January 2010 that Fidelity confirmed Anthony Bolton's return to fund management would be using an investment trust structure; his Fidelity China Special Situations (FCSS) fund was the most successful investment trust launch in nearly 20 years, raising £460 million in May.
It hasn't been the smoothest of launches. Fidelity's decision to pay trail commission to advisers recommending the fund was met with controversy by some. Indeed, this is contrary to how the investment trust sector has operated historically and we can't help but think the move was made to encourage some to recommend the fund when they may otherwise have thought twice.
That said, those who bought into the fund at its launch have made money so far; at December 31, 2010 the fund's net asset value was up 14% and the share price even higher at over 20%, putting the year-end premium to NAV at 5.7%. We're not advocates of short-term trading, but we do worry that shareholders will see a hit to both the price and NAV when further shares are issued in early 2011, so some caution should be exercised.
Fidelity wasn't the only asset manager to have a successful fund launch in 2010. In August, Aberdeen raised nearly £52 million in its Latin American Income fund (ALAI), a slightly different investment trust in that it comprises both equities and bonds, a mix usually reserved for open-ended funds only.
JPMorgan brought two emerging markets funds to the market: GEM Income (JEMI) in July raised £102 million and Brazil (JPB) in April £45 million. BlackRock raised around £92 million in its Frontiers (BRFI) fund in December. The theme of launching funds investing in emerging economies hasn't gone unnoticed as these funds combined accounted for around £750 million into investment trusts, around one-third of the total new money into the closed-end sector in 2010.
Another successful theme in the sector for new launches was infrastructure. John Laing Infrastructure (JLIF) raised £264 million in November, which followed GCP Infrastructure in July (£49 million) and then there was a C-share issue at HSBC which raised £108 million. That's a healthy £421 million that was raised into this niche type of fund. By contrast, there were two brand new open-ended infrastructure funds launched in 2010 (available for sale in the UK), which have raised just £22 million so far between them.
What about closures, though?
We saw some long-standing names disappear from the sector in 2010. Gartmore lost two funds--Growth Opportunities and UK & Irish Smaller Companies--and 2011 may see this trend continue at the group, given the 'For Sale' sign that's been above its door.
George Luckraft and Alastair Mundy are two names held in high regard by us at Morningstar, but a fund of zero dividend preference shares, such as the Investec fund, had a diminishing universe and in 2009 shareholders felt the prudent course of action was to vote to wind the fund up rather than change its remit.
Finally, we'd be remiss to look at the year overall without considering the impact of share repurchases, often referred to as 'death by a thousand cuts'. Some £830 million was spent by companies buying back their shares in 2010, to manage discounts. That's a pretty big number in the context of total new assets into the sector (£2.5 billion at November 30, 2010).
The activity in 2010 serves as a good reminder of the efficiency of the closed-end structure. We don't see the vast swathes of trendy fund launches that can be so prevalent in open-end funds and, when a fund isn't working as it should, it gets wound up.
2011 is unlikely to see a repeat of 2010 in fund launches, primarily because there isn't another investing legend like Anthony Bolton returning to the market. Nonetheless, Bolton's return has definitely put closed-end funds back on the roadmap.
