Press releases
12 December 2011
Income dominates investment company sector in 2011
Investment company end of year review
In a volatile year for world markets, 2011 has been a challenging year for launch activity, with just 6 investment company launches collectively raising £691m. By far the largest launch this year was NB Global Floating Rate Income in the Sector Specialist: Debt sector, which raised £309m. This compares to 15 investment company launches in 2010, collectively raising £1.7bn, but was ahead of a more muted 2009, where 4 launches collectively raised £566m.
The majority of launches in 2011 were in the specialist sectors and most had a strong income theme, not surprisingly in the low interest rate, inflationary environment (see table on page 2). In contrast, 2010 saw a more eclectic range of launches, although a third were again in the specialist sectors, reflecting the rise of specialist mandates in recent years.
Money coming into the sector
Taking both new issues and secondary market issues into account, a total of £2.5bn came into the sector in 2011, according to Winterflood Securities. Some of the largest secondary market issuance was in the Sector Specialist: Infrastructure sector. For example John Laing Infrastructure raised a total of £159.2m through secondary market issuance, Infrastructure India (AIM) raised £70.3m, International Public Partnerships raised £56m, whilst HICL Infrastructure raised a total of £73.4m through regular secondary market issuance. In the more generalist sectors, Personal Assets Trust collectively raised the most through regular secondary market issuance (£96m), followed by Murray International (collectively raising £53.8m) and City of London (collectively raising £34.4m).
Income and charges
An income theme was reflected in many of the policy changes the sector has seen this year, with a number of investment companies adopting an international income focus, although there were some interesting exceptions. Meanwhile, in the core retail focussed sectors (Global and UK), three investment companies abandoned their performance fee arrangements. Foreign & Colonial Investment Trust abolished its performance fee and changed its base annual management fee to a fixed sum to 0.365% of market capitalisation. Schroder UK Growth Fund terminated its performance fee and the base management fee was increased to 0.65%, whilst the basis on which the fee is calculated was also amended so that management fees are not paid on assets financed by borrowings. British Assets Trust removed its performance fee from 1 October, with the basic fee increased to 0.4% of total assets.
International Biotechnology reduced its base management fee from 1.35% of NAV to 1.15%, whilst the performance fee was changed from a 10% performance fee for any returns over 7%, to a new fee of 10% of outperformance of the Nasdaq Biotech index, with a high watermark, whereby a performance fee can only be earned when the fund generates a positive NAV return.
Launches
Three launches this year were in more conventional sectors; namely Diverse Income Trust in the UK Growth & Income sector and Henderson International Income in the Global Growth & Income sector, raising £50m and £42m respectively. Damille Investments II (SFM) in the Global Growth sector raised £74m. Two launches this year were in the Sector Specialist: Debt sector, with NB Global Floating Rate Income being by far the largest launch in 2011, raising £309m. Duet Real Estate Finance, also in the Sector Specialist: Debt sector, raised £50m. Other specialist sector launches this year have been in the Forestry and Timber sector, with Forest Company raising £166m.
New Launches 2011
|
Month
|
Company
|
Sector
|
Launch Assets (£m)
|
Dom
|
|
Mar
|
Duet Real Estate Finance
|
Sector Specialist: Debt
|
50
|
Gue
|
|
Apr
|
Diverse Income Trust
|
UK Growth & Income
|
50
|
UK
|
|
Apr
|
Henderson International Income
|
Global Growth & Income
|
42
|
UK
|
|
Apr
|
NB Global Floating Rate Income
|
Sector Specialist: Debt
|
309
|
Gue
|
|
Jun
|
Forest Company
|
Sector Specialist: Forestry & Timber
|
166
|
Gue
|
|
Nov
|
Damille Investments II (SFM)
|
Global Growth
|
74
|
Gue
|
Money leaving the sector
According to Winterflood Securities, £991.8m left the sector through share buy backs, whilst £628.5m left the sector through tender offers. A further £1.3bn left the sector through wind ups and liquidations (excluding split capital trusts). Hedge funds accounted for some 43% of wind ups and liquidations.
Policy changes
In the difficult market environment, investment company boards have been extremely proactive when it comes to reviewing their investment policies to give managers more flexibility and freedom to invest where they are finding opportunities. 11 investment companies changed their investment policies this year compared to 5 the year before, and a number have broadened their scope to adopt a more international focus.
Amongst the generalist investment companies (Global and UK sectors), and in keeping with the income theme, Martin Currie Portfolio changed its policy to adopt a more international income approach. The old policy was for the Company to achieve long-term capital growth in excess of the capital return of the FTSE All-Share index. The new policy is to achieve long-term capital growth in excess of the capital return of the FTSE World index through investing in a diversified portfolio of UK and international stocks.
Reflecting the trend towards international income was INVESCO Perpetual Select Global Equity, whose previous policy was to deliver long-term capital growth, income generation and income growth by investing in global equities (including UK equities). The new policy will be to provide a greater income orientation with an initial target dividend yield of 3.5%. As a consequence, the company's sector changed to Global Growth & Income (from Global Growth).
Also reflecting the emphasis on income was Securities Trust of Scotland, changing its remit from UK Growth & Income to an international income focus and also joining the Global Growth & Income Sector. A number of companies have instigated changes in order to lift restrictions on the geographical location of their investments. Indeed Edinburgh Investment Trust increased the level of global investment in the trust from 15% to 20%.
Interestingly British Assets Trust has changed its benchmark, increasing its exposure to the UK. From 1 October 2011, the Company's benchmark index changed from a composite of 75 per cent FTSE All-Share Index and 25 per cent FTSE World (ex UK) Index, to 80 per cent FTSE All-Share Index and 20 per cent FTSE World (ex UK) Index. The company also realigned the Global (ex UK) sub-portfolio to generate a higher level of investment income.
Annabel Brodie-Smith, Communications Director, Association of Investment Companies (AIC) said: “In a challenging global economic environment, and at a time when low interest rates and creeping inflation have presented some difficult hurdles for those looking to maximise their savings, it’s not surprising to see that income has been the dominant theme of 2011. This was the case both when it comes to new issues, but was also reflected in much of the secondary market activity.
“Policy changes have also really come to the fore this year. Investment company boards are clearly working hard to help ensure they can add value to investors, by giving the manager as much flexibility as possible in the context of the difficult economic environment.”
-Ends-
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Notes to editors
- The Association of Investment Companies was founded in 1932 to represent the interests of the investment trust industry – the oldest form of collective investment. Today, the AIC represents a broad range of closed ended investment companies, incorporating investment trusts and other closed ended investment companies and VCTs. The AIC’s members believe that the industry is best served if it is united and speaks with one voice. The AIC’s mission statement is to help Members add value for shareholders over the longer term. The AIC has 350 members and the industry has total assets of approximately £93 billion.
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