Bumper Year for Investment Trusts Despite Troubled Market Backdrop

NEWS YOU CAN USE: Markets may have been volatile this month but there is plenty for investors to be excited about - tech fund launches, special dividends and active ETFs

Emma Simon 21 December, 2015 | 10:30AM
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December has proved to be a difficult month at the end of a difficult year for the investment industry. There hasn’t even been a substantial ‘Santa rally’ to bring some festive cheer for investors.

The big investment news this month was the US Federal Reserve finally biting the bullet and raising interest rates, the first time it has done so for nine years. The rate rise was small, but it marks the start of a long slow return to more normal market conditions – and should pave the way for similar moves in the UK.

There was no shock fallout in the markets; this rise after all was widely predicted. But investors are advised to keep a diversified portfolio in the months ahead, to protect them from volatility and sell-offs that could be part and parcel of this stage of the recovery.

This month’s flurry of fund launches reflects these changing market conditions. On one hand there have been fund launches aimed at more confident investors, with others targeting those concerned about more turbulent markets.

Further Fund Manager Departures at Newton

James Harries, manager of the £4.4 billion Newton Global Income fund, announced he was leaving this month, and will join Troy Asset Management in the New Year.

Investors may be left feeling unsettled: this is the second high profile departure at Newton this year, with Jason Piddick, who managed the Asian Income fund, leaving in May.

Newton has a strong ‘team’ ethos and a succession plan is already in place.

The fund will be taken over by Nick Clay, who has been involved of the management of the fund since 2012. Morningstar analysts put the fund Under Review and will be meeting with Clay in due course.

New Tech Fund Launch Bucks Closures Trend

Neptune launched a new Global Technology fund this month, managed by Alistair Unwin, the company’s head of technological research.

This bucks the trend of recent years which has seen a number of investment houses close these specialist funds, the latest from Man GLG which announced it was closing its technology fund in October.

However, Neptune said this was an ideal time to launch such a fund, with new technologies having the potential to disrupt existing markets and sectors over the next few years. It said it wants to capitalise on the companies that will benefit from these changes.

The fund will have a US bias and will hold between 40 and 60 stocks. Disruptive technology is a key theme for the group and will feed into Neptune’s other funds.

Chief executive Robin Geffen said: “Many UK investors' portfolios lean heavily towards UK income funds and UK bond funds and are underweight the US and Japan. Yet this is where many of the key technological disruptors are found. Investing passively will offer no protection because we believe that 30% to 40% of the large companies in most mature stock markets will be eviscerated by this change.”

New Investec Fund Targets Lower Volatility

While Neptune chases investors with an appetite for risk, Investec Structured Products new fund is targeting those who want less volatile investments. This fund will effectively track the 30 least volatile stocks in the FTSE 250. This ‘smart-beta’ fund will be evenly weighted between the 30 stocks and will rebalance its holdings on a monthly basis.

The launch extends the group’s range of low-volatility funds, although most of its previous offerings have tracked more than twice this number of stocks.

Vanguard Launches New Active ETFs

Vanguard – one of the biggest fund managers in the low cost passive sector – has launched four new active ETFs.

These specialist funds, which will be listed on the London Stock Exchange, use quantitative investments process to target four investment strategies: value, momentum, liquidity and minimum volatility.

They will be managed by the company’s quantitative equity group and offer global exposure. They have annual management charges of 0.22%.

Bumper Year for Investment Trusts

Investment trusts continue to reap the rewards of market reforms, which have made charging more transparent for investors. This month we learned that 2015 had been a record year for the industry, with company fundraising hitting a record high of £5.24 billion.

This was helped by 17 new investment company launches, the largest of which was Woodford Patient Capital (WPCT) which raised £800 million alone.

Investment Companies also raised substantial amounts on the secondary market. Woodford Patient raised a further £30 million this way.

Companies in specialist high yielding sectors also raised substantial amounts in this secondary market. The most successful was P2P Global Investment (P2P) which raised £671 million, of which £650 million was via two C share issues.

Big global generalist also raised significant sums: Scottish Mortgage (SMT) and Witan Investment Trust (WTAN) issued £173 million and £81 million of new shares respectively; while in the UK Equity sector, Finsbury Growth & Income (FGT) raised £124 million and City of London (CTY) £69 million.

Alliance Trust Special Dividend Following Rough Patch

One of the bigger investment trusts, which has not enjoyed the same good fortune this year was Alliance Trust (ATST). This month it updated its shareholders on the changes it was making following a hostile attack by activist investors earlier this year.

It confirmed that the revamp of its investment company means its on target to deliver £6 million in savings next year. It has revised its investment strategy, and will pay a special dividend to shareholders at the end of this month.

These changes have seen its share price improve and the discount narrow, which hopefully will mean a more positive outlook for 2016.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk