Martin Currie Asia Unconstrained, the smallest and worst performing trust in its sector, is to be liquidated after board gives up efforts to gain investor interest.
Martin Currie Asia Unconstrained (MCP), the smallest and worst performing investment trust in the Asia Pacific ex-Japan sector, is to convert to an open-ended fund after a review by its board concluded there was ‘little prospect’ of an improvement.
The £143 million trust was given a reboot in August 2014 when it moved out of the relatively unpopular pan-Asian including Japan sector and adopted a less volatile absolute return mandate of matching economic growth in the region.
Although fund manager Andrew Graham succeeded in this aim, shares in the trust traded at a wide discount to their net asset value and lagged rivals.
Two years ago it attempted to revive investor interest by upping its dividend to a 4% yield with payments boosted from capital. Unlike other trusts that have adopted this approach, it failed to achieve a rerating of its stock.
Share buybacks and a 10% tender offer also could not shift the chronic discount with analysts saying the trust was not different enough to its sister, the Dublin-based Legg Mason Martin Currie Asia Long-Term Unconstrained open-ended investment company that Graham also runs with Paul Danes and Damian Taylor.
Nevertheless, the trust passed a three-year continuation vote from shareholders last summer, but the board, chaired by Harry Wells, this week decided there was ‘little prospect of any significant improvement in the key issues affecting the rating of the company’s shares in the market’.
‘The discount, and the relative size of the company along with poor liquidity in its shares continue to present structural hurdles that deter potential new buyers of the company’s shares,’ it said in an announcement to the stock market.
The 34-year-old investment company will be liquidated with shareholders given the option of a cash exit or rolling over into an open-ended fund based on the same strategy.
Shares in Martin Currie Asia Unconstrained jumped nearly 10% when the announcement was made on Tuesday, achieving the rerating the board had sought. At 411p, up another 1% today, the trust stood at its narrowest discount for a decade at 6%.
Legg Mason-owned Martin Currie, the fund manager, is likely to see a lot of the trust's money walk out of the door, said analysts. This is because over a third of its shares are held by discount hunters Wells Capital, 1607 Capital Partners and City of London Investment Group, which will not be interested in the open-ended fund.
‘We would expect there to be strong demand for the cash exit given that a number of the value investors have a mandate to invest predominantly in closed-end funds,’ said Priyesh Parmar of Numis Securities.
Figures from the Association of Investment Companies (AIC) show the trust underperformed over one, three, five, and 10 years. Over the past decade it has returned 119.5% versus 201.8% from its Asia Pacific peer group. Over five years the trust managed a return of 54.5% against 61.1% from the sector.
In the three years to the end of May the trust performed better than the sister fund into which investors may be rolled. A total shareholder return of 46.6% compared to 39.5% from the open-ended Dublin fund, although both were behind the 49.9% of their stock market benchmark.
Alan Brierley, analyst at Canaccord Genuity, was unimpressed, noting that the open-ended fund on offer was ranked 69th out of 99 and 56th out of 88 Asia Pacific ex Japan open-ended funds over three and five years respectively.
‘We find this option uninspiring and for investors looking for ongoing exposure, we recommend they opt for a cash exit and switch into Schroder Asian Total Return (ATR), which is a constituent of our Flexible Model Portfolio,’ he said.