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Investment company 2018 review

18 December 2018

Industry outperforms in a challenging year while fee cuts accelerate.

It’s been a good year for investment companies against a challenging market backdrop. The average investment company returned 1.3% over the year to 30 November, outperforming losses of 2.6% for the average open-ended fund and 6% for the FTSE All-Share.

The industry’s assets reached an all-time high of £189 billion in September, pulling back to £182 billion in November. Despite market turbulence, the average discount at end November was 5.8%, only marginally wider than at end November 2017 (4.7%).

A total of 37 investment companies cut fees in 2018. This represents 11% of the industry ex VCTs and is a significant increase from 2017 when 27 companies reduced charges.

Ian Sayers, Chief Executive of the Association of Investment Companies (AIC) said: “2018 has been an important year for investment companies. As well as marking the 150th anniversary of the launch of the first investment company, 2018 has seen industry assets hit another all-time high and the biggest-ever launch of a UK investment company. It’s been a strong year for fundraising and, despite more difficult market conditions, investment companies’ discounts have not significantly widened.

“It’s positive that 11% of the industry have reduced their fees in 2018. Independent boards of directors are a benefit of the sector and continue to represent investors’ interests by negotiating lower fees.”

Fee changes

The trend of investment companies reducing fees accelerated in 2018 with 37 companies lowering fees compared to 27 in 2017. Fee changes over the year included investment companies lowering management fees (21), abolishing performance fees (9) and introducing tiered management fees (15)* where charges fall as a company’s assets grow.

Introducing tiered management fees

Month

Company name

AIC sector

Jan

Henderson High Income

UK Equity & Bond Income

Feb

North American Income

North America

Apr

Securities Trust of Scotland

Global Equity Income

Apr

Aberdeen New India

Country Specialists: Asia Pacific

Apr

Fidelity European Values

Europe

Apr

City Natural Resources High Yield

Sector Specialist: Commodities & Natural Resources

Apr

Henderson Alternative Strategies

Flexible Investment

May

Artemis Alpha

UK All Companies

Jun

Jupiter Green

Sector Specialist: Environmental

Jul

VinaCapital Vietnam Opportunity

Country Specialists: Asia Pacific

Jul

Fidelity Japan

Japan

Sep

Schroder Income Growth

UK Equity Income

Oct

Henderson European Focus

Europe

Dec

Invesco Asia

Asia Pacific - Excluding Japan

Dec

Schroder UK Mid Cap

UK All Companies

Source: AIC

Abolishing performance fees

Month

Company name

AIC sector

Jan

Target Healthcare

Property Specialist

Jan

Invesco Perpetual Enhanced Income

Global High Income

Mar

Premier Global Infrastructure

Sector Specialist: Utilities

Apr

BlackRock Smaller Companies

UK Smaller Companies

May

Value and Income

UK Equity Income

May

Artemis Alpha

UK All Companies

Jun

Jupiter Green

Sector Specialist: Environmental

Oct

MedicX

Property Specialist

Oct

Henderson European Focus

Europe

Source: AIC

IPOs

19 new investment companies launched over the year raising £3 billion, the third highest amount raised on record and an increase from 2017 where 15 new companies launched raising £2.5 billion. Interestingly, equity investment companies comprised the majority of launches in 2018 with 10 IPOs raising £2 billion (65%). This included Smithson which raised £823 million in October, the largest ever UK investment company launch.

Month

Company name

AIC sector

Assets (£m)

Feb

Marble Point Loan Financing

Sector Specialist: Debt

148

Mar

Augmentum Fintech

Sector Specialist: Tech, Media & Telecomm

94

Mar

Baillie Gifford US Growth

North America

173

Mar

JPMorgan Multi-Asset

Flexible Investment

93

Mar

Life Settlement Assets

Sector Specialist: Insurance & Reinsurance Strategies

134

May

Gore Street Energy Storage

Sector Specialist: Infrastructure - Renewable Energy

31

May

Odyssean

UK Smaller Companies

87

Jul

Ashoka India Equity

Country Specialists: Asia Pacific

46

Jul

Hipgnosis Songs

Sector Specialist: Tech Media & Telecoms

202

Jul

Tritax Eurobox

Property Direct - Europe

300

Sep

Trian Investors 1

Sector Specialist: Financials

271

Oct

AVI Japan Opportunity

Japanese Smaller Companies

80

Oct

Ceiba Investments

Property Specialist

30

Oct

Mobius

Global Emerging Markets

100

Oct

Smithson

Global Smaller Companies

823

Nov

Gresham House Energy Storage

Sector Specialist: Infrastructure - Renewable Energy

100

Nov

M&G Credit Income

Sector Specialist: Debt

100

Nov

Merian Chrysalis

Private Equity

100

Dec

SDCL Energy Efficiency Income

Sector Specialist: Infrastructure - Renewable Energy

100

Source: AIC

Secondary fundraising

£4.8 billion was raised by existing investment companies over the year to 17 December. Sectors investing in alternative assets were the leaders in secondary fundraising, raising £3.3 billion (68%). Sector Specialist: Infrastructure raised the most (£758m) followed by Sector Specialist: Debt (£657m) and Property Specialist (£654m).

BioPharma Credit in Sector Specialist: Debt was the investment company that raised the largest amount (£349 million), ahead of Sequoia Economic Infrastructure Income in Sector Specialist: Infrastructure (£329m) and PRS REIT in Property Direct – UK (£250m).

Borrowing at low interest rates

Investment companies continued to take advantage of low interest rates to make long-term borrowings at attractive rates. In August JPMorgan Japanese borrowed £89 million over 30 years and in November Alliance Trust borrowed £60 million over 35 years.

Company

Date

Value

% of net assets

Maturity

Interest rate

Alliance Trust

Nov-18

£60m

2.30%

15/25/35yrs

2.657%/2.936%/2.897%

JP Morgan Japanese

Aug-18

£89m

11.00%

10/15/20/25/30yrs

0.76%/0.95%/1.11%/1.21%/1.33%

Scottish Mortgage

Jun-18

£170m

2.40%

20/23/30yrs

2.91%/2.94%/2.96%

Brunner

Jun-18

£25m

6.70%

30yrs

2.84%

F&C

Mar-18

£75m

2.10%

30yrs

2.92%

JPM Global Growth & Income

Jan-18

£30m

7.20%

30yrs

2.93%

Source: AIC

-Ends-

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Notes

  1. Data source: AIC/Morningstar.
  2. Investment company performance is % share price total return of the average investment company ex VCTs from 1 January – 30 November 2018.
  3. Average open-ended fund performance is IA OE Total. Source: AIC/Morningstar.
  4. Discount data is overall weighted average ex VCTs.
  5. *Total exceeds 37 as some investment companies undertook more than one type of fee change.
  6. 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 355 members and the industry has total assets of approximately £182 billion.
  7. 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.
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