Coming to market

In a market environment that continues to be dominated by uncertainty – with volatility triggers ranging from the Covid-19 crisis to the Brexit deal - diversification has never been more critical. And that requires advisers and investors to look beyond traditional asset classes.

In this context, the remarkable recovery in investment company share issuance in recent months could hardly have come at a better time. October was the strongest month for investment company fundraising in two years, data produced by analyst Winterflood shows, with more than £1.7bn of cash flowing into the sector. This is important not only as this figure represents a near 400% rise on September’s total, but also because the nature of the funds raising money was so wide-ranging.

We saw, for example, Home REIT pick up just over £240m for a new fund that will invest in accommodation for homeless people, as well as £115m, £105m and £100m raises respectively from Aquila European Renewables Income Fund, SDCL Energy Efficiency Income and Triple Point Energy Efficiency Infrastructure Trust in the green energy sector.

In the specialist property arena, meanwhile, Supermarket Income REIT and Urban Logistics enjoyed successful issues. Merian Chrysalis and Augmentum Fintech were also among the diverse group of funds picking up money.

Not one of these funds operates in the mainstream space. Each of them offers advisers and investors a different way to build valuable diversification into their portfolios. Each fund’s manager will naturally make a strong argument for the investment case for their proposition, but stepping back from that, the most pleasing thing about this round of issuance is the powerful opportunities it offers for sensible portfolio planning and asset allocation strategy.

The investment companies sector has a long track record of this kind of issuance, of course. For retail investors in particular it has become the most convenient and straightforward route into non-conventional asset classes. In many cases, it is simply not possible for most investors to secure exposure to these assets – and their diversification benefits – in any other way.

This is one reason why we are seeing such strong demand for investment company share issues right now. Global stock and bond markets have stabilised somewhat compared to the extreme volatility we saw back in the Spring. And with Covid-19 vaccines now becoming available, there is scope to be optimistic about what lies ahead. But investors remain acutely aware of elevated risk and are looking to build protection into their portfolios.

Investment companies continue to respond. The fund-raising seen in October has continued, with alternative assets still to the fore. Downing Renewables & Infrastructure Trust, for example, has just raised £133m. Further issues on the blocks include Round Hill Music Royalty Fund.

This is not to say conventional investment companies are sitting on their hands. While several new funds have been withdrawn, Schroder British Opportunities did get off the ground at the end of November. And a bunch of well-known mainstream funds, including Smithson, Personal Assets, Edinburgh Worldwide and Allianz Technology Trust have run successful secondary issues in recent months.

This will no doubt continue, providing new and existing investors in these vehicles with opportunities to consider. However, the bigger story here is of a recovery in investment companies issuance from a very broad range of funds that comes just at the right moment, meeting huge demand for portfolio diversity.