Investment Trust Launches Seek to Meet Income Demand

It has been a good year for investment trusts; closed-end funds saw record inflows, new fund launches aimed at income investors and performance fees cut

Emma Wall 23 December, 2015 | 10:07AM
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Emma Wall: Hello and welcome to the Morningstar series, "Ask the Expert." I'm Emma Wall and I'm joined today by Morningstar's Senior Fund Analyst, David Holder.

Hi, David.

David Holder: Hello, Emma.

Wall: So, you are our investment trust specialist here at Morningstar and investment trusts as an industry have had a pretty good year, a bumpy year, a record year in terms of inflows. What kind of figures are we talking?

Holder: We're talking around £2.8 billion of new issuance at the primary markets.

Wall: Not bad. And what has driven that?

Holder: It's been investor demand fundamentally. We've seen significant new launches in some of the specialist areas such as peer-to-peer lending, specialist sort of property, investment companies, but also more conventionally Woodford Patient Capital Trust which £100 million was the largest fund raising – fund launch in history.

Wall: And all of those sit within the alternatives sector which is an area that investors are increasingly looking at for diversified income, income of course remaining the prime consideration for many investors and most of our readers, especially in the post-retirement space. But it hasn't just been those new and niche funds that have seen inflows, has it? There has been some of the older guard issuing as well, haven't they?

Holder: Indeed. Within the secondary market we've seen significant issuance from the likes of Scottish Mortgage Trust, Witan and City of London. These are very old established trusts which are investing primarily into global equities. So, whilst the number of issues have been significant in terms of the alternative space and alternative income in particular, there is still space and demand, if you like, for some of the more old-fashioned investment companies.

Wall: And these old-fashioned investment companies who are issuing new shares to the market that of course is beneficial to the existing shareholders and to new shareholders because it brings the premium down, doesn't it, which means of course that buying into these funds is cheaper.

Holder: It brings the premium down. It also increases liquidity and reduces ongoing costs as well. So, all of those factors are very positive for investors. However, the word of caution we would note is that if boards are very keen to issue shares then they should be equally keen to buy back shares to protect investors' rights in the future.

Wall: And as well as issuance one of the key themes this year has been the fact that fund fees have been reduced. You've seen some performance fees being knocked out and base fees come down as well and that is positive of course for the investment industry.

Holder: Yeah, it must be positive at the end of the day because fees come out of investor returns. So, we at Morningstar are very keen that investors face fair fees and that the fee structure is flexible, is straightforward and transparent as well. So, we welcome those changes.

Wall: David, thank you very much.

Holder: Thank you, Emma.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

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Emma Wall  is former Senior International Editor for Morningstar

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