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Investment company activity over H1 2018

23 July 2018

Fees continue to fall with 26 investment companies making fee changes.

It’s been an active first half of the year for the investment company industry. Investment companies have continued to reduce their fees with a total of 26 making fee changes over H1 2018 and demand for investment companies has remained strong. There have been seven new investment company launches raising £759million and fundraising by existing companies reached £2.2bn.

At the end of June 2018, the average investment company discount was -3.5% and industry assets reached an all-time high of £183billion. This follows the expansion of the AIC’s universe in March to include non-AIC-member UK REITs which are funds and non-AIC-member investment companies listed on the Specialist Fund Segment (SFS) of the London Stock Exchange.

Ian Sayers, Chief Executive of the Association of Investment Companies (AIC) said: “It’s been a positive first half of the year for the investment company industry. Demand for investment companies has remained healthy with seven new investment companies launching and £2.2billion being raised by existing investment companies. It’s interesting to see a number of new equity investment companies launching as well as those investing in alternative assets, which has been a popular area for new launches in recent years.

“Over the first half of 2018, more investment company boards have negotiated lower fees for shareholders. Independent boards are a key investment company benefit, acting in shareholders’ interests, and it’s good to see this in action so clearly.”

Fee reductions

The trend of investment companies lowering their fees continued in H1 2018. Seven investment companies removed their performance fees and ten investment companies introduced tiered management fees. This marks a noticeable increase from the first half of 2017 where four companies abolished performance fees and five introduced tiered management fees.

Investment companies which removed performance fees in H1 2018

Performance fee removed

Company

AIC sector

January

Premier Global Infrastructure

Sector Specialist: Utilities

January

Invesco Perpetual Enhanced Income

Global High Income

February

(with effect from November 2017)

Aberdeen Emerging Markets

Global Emerging Markets

March

BlackRock Smaller Companies

UK Smaller Companies

April

Jupiter Green

Sector Specialist: Environmental

April

Value & Income Trust

UK Equity Income

May

Artemis Alpha

UK All Companies

Investment companies which implemented tiered management fees in H1 2018

Tiered fee introduced

Company

AIC sector

New tiered fee

January

 

Henderson High Income

UK Equity & Bond Income

0.5% of the first £250m of adjusted gross assets, 0.45% above £250m.

February

(with effect from December 2017)

Allianz Technology

Sector Specialist: Tech Media & Telecomm

0.8% p.a. of market capitalisation to £400m, 0.6% p.a. above £400m.

February

North American Income

North America

0.75% of the NAV up to £350m, 0.6% between £350m and £500m, and 0.5% over £500m.

April

Henderson Alternative Strategies

Flexible Investment

0.6% p.a. of the first £250m of the NAV and 0.55% p.a. in excess thereof.

April

Aberdeen New India

Country Specialists: Asia Pacific

0.9% of the NAV valued monthly up to £350m, 0.75% above £350m.

April

City Natural Resources High Yield

Sector Specialist: Commodities & Natural Resources

1.2% p.a. of the NAV below £150m, 1.1% of NAV above £150m up to £200m, 1.0% above £200m up to £250m and 0.9% above £250m.

April

Fidelity European Values

Europe

0.85% of the first £400m of funds under management, 0.75% will be applied to funds over £400m.

April

Securities Trust of Scotland

Global Equity Income

0.6% of the NAV up to £200m and at an annual rate of 0.4% of the NAV above £200m.

May

Artemis Alpha

UK All Companies

0.75% p.a. of the first £250m of the average monthly market capitalisation, 0.7% between £250m and £500m, and 0.65% above £500m.

June

Jupiter Green

Sector Specialist: Environmental

0.7% of the NAV up to £150m, reducing to 0.6% for the NAV over £150m and up to £250m, and reducing further to 0.5% for the NAV in excess of £250m.

IPOs

The first half of the year saw seven new investment companies launch raising £759million.  While this is less than the 10 companies that launched in H1 2017 raising £1.5billion, it marks the continuation of an upward trend in investment company IPOs.

The biggest new issue was Baillie Gifford US Growth in the North America sector which raised £173million in March.

Month

Company

AIC sector

Assets (£m)

February

Marble Point Loan Financing

Sector Specialist: Debt

148

March

Augmentum Fintech

Sector Specialist: Tech, Media & Telecomm

94

March

Baillie Gifford US Growth

North America

173

March

JPMorgan Multi-Asset

Flexible Investment

93

March

Life Settlement Assets

Sector Specialist: Insurance & Reinsurance Strategies

134

May

Gore Street Energy Storage

Sector Specialist: Infrastructure – Renewable Energy

31

May

Odyssean Investment Trust

UK Smaller Companies

87

Secondary issuance

Although fundraising by existing investment companies in the first half of 2018 did not match the record £3.3billion which was raised in H1 2017, secondary issuance has remained strong with £2.2billion being raised.

As in the first half of 2017, investment companies investing in alternative assets raised the most in H1 2018. The Property Specialist sector was the leader raising £499million, followed by Sector Specialist: Debt (£315million), Property Direct – UK (£257million) and Sector Specialist: Infrastructure (£237million).

Of the £257m raised by investment companies in Property Direct – UK, almost all was raised by PRS REIT which raised £250million. This was the largest single secondary share issue by an investment company over the period, followed by Tritax Big Box REIT (£156million) in Property Specialist and Greencoat UK Wind (£119m) in Sector Specialist: Infrastructure -  Renewable Energy.

Long-term debt

Over the first six months of 2018, several investment companies continued to take advantage of low interest rates to secure long-term debt at attractive rates. 

Month

Company

Value

% of net assets

Maturity

Interest rate

January

JPMorgan Global Growth & Income

£30m

7.2%

30 years

2.93%

March

F&C Investment Trust

£75m

2.1%

30 years

2.92%

June

Brunner

£25m

6.7%

30 years

2.84%

June

Scottish Mortgage

£170m

2.4%

20/23/30 years

2.91%/2.94%/

2.96%

Source: Numis Securities

Other activity

In June, Dunedin Smaller Companies agreed, in principle, to merge with Standard Life UK Smaller Companies following a strategic review by the board. If approved by shareholders of both companies, this is expected to complete in September 2018.

In the first half of 2018, two investment companies changed management groups. In March, Investment Company moved to Fiske from Miton Trust Managers and in June, Schroder UK Growth moved from Schroder Investment Management to Baillie Gifford with the company being renamed Baillie Gifford UK Growth.

Three other investment companies changed their names over the period. In March, Invesco Perpetual Select Balanced Risk renamed to Invesco Perpetual Select Balanced Risk Allocation. In May, Fidelity Japanese Values was renamed Fidelity Japan and in June, Chelverton Small Companies Dividend changed its name to Chelverton UK Dividend.

-Ends-

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Notes

  1. 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 352 members and the industry has total assets of approximately £183 billion.
  2. 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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