By Annabel Brodie-Smith
It’s been a full-on month in the world of investment trusts. We have been burning the midnight oil here at the AIC and it’s not Trump’s tariffs or yesterday’s interest rate cut which are keeping us up.
This week five investment trust votes have taken place, and six of seven votes have now completed. Shareholders have decisively rejected Saba’s proposals to radically change the mandate, manager and board of the seven trusts. They have voted in favour of investment trusts’ long-term approach and the independent oversight provided by boards of directors. Thank you so much to everyone who has voted – we very much appreciate it.
But it’s not over yet. The Edinburgh Worldwide vote is on Valentine’s Day and shareholders need to act now to be sure of meeting platform deadlines. It’s the perfect opportunity to show your investment trust some love. Please do make sure you vote.
“The Edinburgh Worldwide vote is on Valentine’s Day and shareholders need to act now to be sure of meeting platform deadlines. It’s the perfect opportunity to show your investment trust some love.”
There are clearly some lessons to be learned from the Saba situation. Although the large platforms stepped up, did the right thing and enabled shareholders to vote, the process has highlighted shockingly poor practices among some investment platforms and providers. They have failed to pass on voting rights and information, charged customers to vote, and declined to vote shares even when requested to do so. This is clearly completely unacceptable – shareholders must be able to have their say on the future of their investment trust!
This is why we have launched a campaign, ‘My share, my vote’ to change Company Law. It should be mandatory for platforms and other nominees to pass on company information and voting rights. And voting needs to be easy and straightforward for everyone. We will be updating you on the campaign as it unfolds.
One of Saba’s criticisms of the sector is that boards have been too slow to respond to wide discounts and need to raise their game. The current average discount is 14%. My colleague, Nick Britton has done some interesting analysis, discounts have been at double-digits levels for 29 months, the longest period in 30 years. Further AIC research shows that the average investment trust excluding 3i returned 86.5% in five-year periods that began with double-digit discounts, compared to the 53.8% return achieved over five years when investing at discounts narrower than 10%. So it could be time to go investment trust discount shopping.
“…it could be time to go investment trust discount shopping.”
Boards are focused on discount management, assessing their trust’s appeal in the market and communicating and marketing effectively to private investors, new buyers and existing shareholders. Last year boards delivered record levels of share buybacks and mergers, and this is continuing. Today a proposed merger was announced combining Henderson International Income with JPMorgan Global Growth & Income. And yesterday BBGI, an infrastructure investment trust, agreed a one billion pound cash sale to a bidder at a 21% premium to Wednesday’s closing price.
Which brings me neatly to infrastructure investment trusts. Last week I was talking to their managers about the prospects for these trusts and what could be the catalysts to turn around perception of the infrastructure sectors. The Infrastructure sector is currently on a 20% discount and yielding 6.3% whilst the Renewable Energy Infrastructure sector is on a 33% discount and yielding 9.8%. I know many of them have had a difficult time performance-wise but this doesn’t apply to all of these trusts. It’s well worth listening to Phil Kent of GCP Infrastructure Investments, Benn Mikula of Cordiant Digital Infrastructure and from the Infrastructure Securities sector, Jean Hugue De Lamaze of Ecofin Global Utilities and Infrastructure. You can also read their comments.
This month, Ian Cowie delves in to the prospects for smaller companies, which he reminds us could be less vulnerable to trade tariff wars. Of course, as Ian explains small companies “can be summarised with the observation that not every acorn grows into an oak.” Still Ian is a long-term holder in Baillie Gifford Shin Nippon, Edinburgh Worldwide, European Assets Trust, India Capital Growth and JPMorgan US Smaller Companies. And if you’re wondering why Ian doesn’t have UK smaller companies trusts it’s because he has had an exciting ride investing in “British tiddlers”.
“This month, Ian Cowie delves in to the prospects for smaller companies, which he reminds us could be less vulnerable to trade tariff wars.”
Don’t miss The Times’ deputy money editor, Holly Mead, an incredible investment champion and owner of a small dog, explain why she likes investment trusts and which ones she invests in with our investment editor, Nick Gardner.
If you have any feedback or questions on our website, we’d love to hear them so please send them through to website@theaic.co.uk.
After the Valentine’s Day’s vote I am taking a couple of days off for half-term with the boys. I don’t know what I’m doing yet but I’m definitely not scanning announcements and drafting responses!
Have a lovely month.
Kind regards
Annabel Brodie-SmithCommunications Director, AIC
