Investment company 2018 review
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
- Data source: AIC/Morningstar.
- Investment company performance is % share price total return of the average investment company ex VCTs from 1 January – 30 November 2018.
- Average open-ended fund performance is IA OE Total. Source: AIC/Morningstar.
- Discount data is overall weighted average ex VCTs.
- *Total exceeds 37 as some investment companies undertook more than one type of fee change.
- 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.
- 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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