AIC end of year review 2017

2017 has been a year of records for the investment company sector with total assets under management hitting an all-time high of £174bn at the end of August and secondary fundraising reaching a record £6bn.

This year has been a strong year for performance with the average investment company up 14% in share price total return terms, to the end of November 2017. Assets remain close to a record level with £171bn total assets under management at the end of November 2017, growing by 77% in five years from the end of December 2012.

At the end of May this year, the average discount reached 1.8%, its narrowest ever. Over the course of the year discounts have narrowed from 3.8% at the end of December 2016 to 2.4% at the end of November.

Ian Sayers, Chief Executive of the Association of Investment Companies (AIC) said: “2017 has been a record breaking year for the sector. The investment company sector has delivered strong, positive returns over 1, 3, 5 and 10 years, the number of IPOs has increased on last year and secondary fundraising has reached a record level. This has been driven by the sector’s unique advantages in delivering a higher and growing income and most of this was from investment companies investing in alternative assets such as infrastructure and property, which are much better suited to the closed-ended structure of an investment company.

“This year also saw adviser and wealth manager purchases of investment companies reach record levels, with every chance that they might exceed £1bn in 2018. It’s not surprising that with the demand for the sector being so strong, discounts have narrowed and continue to trade close to an all-time low.”

Fundraising - new issues

Demand for new issues bounced back in 2017 with 15 new issues so far this year, raising £2.5bn, up 92% in comparison to 2016 when there were 7 new issues raising £1.3bn. The property sector has dominated new issues accounting for 56% of the assets raised (£1.4bn) and 8 out of 15 new issues. The largest new issue this year was BioPharma Credit from Sector Specialist: Debt, which raised £605.8m in March.

Secondary fundraising

2017 has been a record year for existing companies issuing new shares (secondary fundraising). Over the year to 14 December, secondary fundraising has reached an all-time high of £6bn. This is £1bn more than the whole of 2016 and £0.5bn higher than the previous record in 2015.  

It was investment companies investing in alternative assets with higher yields which continued to issue the highest number of new shares this year. The Sector Specialist: Infrastructure issued the highest value of shares (£1.35bn), followed by the Property Specialist sector (£0.97bn), Sector Specialist: Infrastructure – Renewable Energy (£0.79bn) and Sector Specialist: Debt (£0.76bn).

Long-term debt

This year has seen a surge in the number of investment companies taking advantage of current interest rate levels and issuing long-term, fixed rate debt (please see below table from Numis Securities Research).

Source: Company & Numis Securities Research

Charges

Investment companies have continued to announce changes to their charging structures throughout 2017, with the trend for introducing tiered fees or amending tiered fee structures continuing. A total of 23 investment companies announced they would be introducing or amending their tiered fee structure.

The sector has continued to see a reduction in the number of companies with a performance fee in place, with seven companies abolishing their performance fee in 2017.

Other developments

Ten investment companies changed their name in 2017. Please see the table below for full information.

Investment company sector net fundraising to 14 December 2017

-Ends-

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Notes

1. Data is to 30 November 2017 based on the last official close price at the month end, on a % share price total return basis. No expenses taken into account. Source: Morningstar.
2. The Association of Investment Companies (AIC) 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 347 members and the industry has total assets of approximately £171 billion.
3. Disclaimer: The information contained in this press release does not constitute investment advice or personal recommendation and it is not an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. Past performance is not a guide to future performance. The value of investment company shares, and the income from them, can fall as well as rise. You may not get back the full amount invested and, in some cases, nothing at all.