The likelihood of more corporate activity in the investment trust market is intensifying. Sierra Tra...
The likelihood of more corporate activity in the investment trust market is intensifying.
Sierra Trading, a US arbitrageur group, announced it had increased its stake in the £525m Bankers trust, managed by Michael Moule at Henderson Investors. Sierra now control 9.35 million of the trust's shares, equivalent to 6.59% of the trust. The last announced position was 5% in February 2000. Sierra is also believed to have stakes in other international generalist trusts.
The announcement came a week after Investment Week reported the futures of some emerging market trusts were under threat with the launch of Value Catalyst. The Dublin-domiciled fund intends to take proactive stakes in underperforming trusts on wide discounts, predominantly in the emerging markets sector.
Already the future of Govett Emerging Markets is threatened. Two weeks ago shareholders who represent just under 14% of the trust requisitioned an EGM to consider proposals to provide continued investment and realisation options. This could involve providing an exit close to NAV and converting the trust into an open-ended structure.
One of the shareholders in the trust is Advance Developing Markets which has written to other shareholders of Morgan Grenfell Latin America pointing out the under performance of the trust since it was launched in 1994. Between 31 March 1994 and 31 March 2000 the share price of the trust has fallen by 16% while the MSCI Latin America, the trust's benchmark, has advanced by 13.14% in sterling terms. The trust has a continuation vote this month and Nigel Wilson, manager of Advance Developing Markets, is encouraging the board to provide shareholders with a range of options offering choice and value.
Daniel Godfrey, director general of the AITC, believes the increase in arbitrageur activity is inevitable when discounts are at such wide levels. Excluding 3i, which trades on a high premium the average discount is approximately 15%. He said: "Investment trusts are looking extremely good value at the moment and it is perfectly fair for arbitrageurs to take stakes in trusts."
Although he added the increase in arbitrageur activity proved the importance of the its campaign. Godfrey said: "What we as an industry have to do is not to give arbitrageurs the opportunity to pressurise for corporate action. One way this can be done is by changing the composition of the shareholder base of trusts to one consisting of long-term retail investors."
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