Valuation, Innovation and Consolidation in Investment Trusts

2012 REVIEW: Investment trusts saw notable discounts among European equity funds, some innovative--and altruistic--launches, and consolidation among players; what's in store for 2013?

Jackie Beard, FCSI 4 January, 2013 | 5:35PM

As we look back at 2012, it’s encouraging to see that overall, discounts in the investment trust sector have narrowed. There are most likely a number of reasons for this: increased interest, more proactive boards—spurred on by some proactive shareholders, recognition of good performance, and income-seeking investors, to name but a few.

Widening Discounts on European Equity Funds

Discounts can oft be cited as a reason not to look at investment trusts. But they can provide an investor with the opportunity to buy assets for less than they’re worth, and if sentiment is against a particular area or sector that difference can be wider than average. Let’s use European equities as an example. This was an area that was out of favour with many in the first part of 2012 and discounts on European equity investment trusts widened out in the early months. But there are some high quality managers running these funds—most of whom are well-known in the open-end sector and, indeed, rated positively by Morningstar at both their open-end funds as well as their investment trusts. Take Sam Morse at Fidelity. He runs both Fidelity European Values (FEV) and Fidelity European. The trust started trading last year at a discount to its NAV of more than 14%. At the end of 2012 this had narrowed to just under 10%. Not only that, but the trust also performed better than its OEIC counterpart. So investors in the trust had the double-benefit of better performance and a tightening discount.

New Launches, New Assets

As a sector, we saw nearly £1 billion of new money come into investment trusts in 2012. That’s chicken-feed when compared with open-ended funds, which topped EUR 170 billion of inflows across Europe, but nonetheless it shows there is life in the sector yet. We saw only a few plain vanilla equity funds launched or raising assets—BlackRock North American (BRNA) and Diverse Income Trust (DIVI) being two exceptions; rather, it was the alternative asset funds that gained more interest—GCP Infrastructure (GCP) and Doric Nimrod (DNA).  

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About Author

Jackie Beard, FCSI

Jackie Beard, FCSI  is Director of Manager Research Services, Morningstar EMEA

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