By Annabel Brodie-Smith
Well, what a week it has been! Dominated by the news about Neil Woodford’s open-ended fund and Donald Trump’s visit. Firstly, the announcement of the suspension of Woodford Equity Income Fund demonstrates a very important difference between open-ended funds and investment companies when it comes to investing in assets which are difficult to buy and sell, known as illiquid assets. A listed investment company with a closed-ended structure is particularly suitable for investing in assets like unquoted shares, which are hard to buy and sell. This is because managers do not have to worry about money coming in or leaving the fund as investment company shares are bought and sold on the stock exchange. So, if there is negative news the investment company’s share price will fall but the portfolio will be unaffected. Investors may not like the investment company share price which will have suffered but they can continue to buy and sell the investment company if they wish to. The investment company continues and lives to fight another day. In contrast, open-ended funds do not work well for illiquid assets. The fund manager has to manage the portfolio to accommodate inflows and outflows, ensuring they have enough money available to give investors back their money. When the chips are down, the open-ended fund manager cannot sell the illiquid assets quickly enough to meet investor redemptions, despite retaining a cash cushion for these situations. An open-ended fund is forced to suspend trading so investors cannot buy or sell it. This inevitably brings bad publicity to the open-ended fund which is not helpful when it opens to trading again. It’s an important lesson from the Woodford debacle and we’ve seen it before. During the financial crisis and after the Brexit vote, sentiment towards the commercial property sector plummeted as a number of open-ended property funds were closed or semi-closed to trading as managers struggled to meet redemptions. Investment company property share prices suffered but investors could continue to buy and sell them and when sentiment turned the share prices bounced back. Secondly, the Trump visit. Trump, a well-known climate change denier, had a 90-minute chat with the Prince of Wales on his visit to the UK. This was much longer than the 15 minutes scheduled and we know from Trump that the prince did “most of the talking” on climate change. Whether the prince persuaded Trump of his concerns about climate change remains to be seen. But it’s highly appropriate that this month Compass is covering climate change. Do watch my interview below where I talk to Richard Crawford from The Renewables Infrastructure Group and Jon Forster from Impax Environmental Markets on the consumer and political pressure to prevent climate change and their outlook.
Jon Forster – Impax Environmental Markets, and Richard Crawford - The Renewables Infrastructure Group, discuss environmental markets, political regulation, public concern and how they approach these themes in their portfolios.
On climate change, fund manager, Mark Whitehead, of Securities Trust of Scotland explains the very real impact it has on his portfolio: “Whether we like it or not, every investment decision we now make needs to account for the effects of climate-related change.” Take a look at our piece examining how global managers are dealing with climate change. The Renewable Energy Infrastructure sector has raised a record-breaking billion pounds this year. We talked to managers in this sector to find out about the wind farms, solar farms and energy storage where they are investing this money. They talk about the Extinction Rebellion protests and the regulatory response to prevent global warming. On the theme, Jon Forster, manager of Impax Environmental Markets discusses how his portfolio is capturing opportunities in companies that mitigate against and help us adapt to climate change. Finally, Ian Cowie ignores the thorny issue of Brexit and looks at whether investors should be considering Europe. He discusses European investment companies and his own holdings in Europe and is of the view that: “seeking exposure to income, growth or a mixture of both from investment companies in Europe could prove to be one of the easiest deals in human history.”
I'm keen to make the most of my first summer in the country and spend lots of time outside walking, riding and gardening.
Wishing you a good June. Annabel Brodie-Smith Communications Director, AIC
