Now is the moment of truth for the investment trust industry. It is not about the future of the 'its...
Now is the moment of truth for the investment trust industry. It is not about the future of the 'its' campaign or the PR implications of aggressive new economy split caps having to hand money back to banks as their asset bases crumble.
It is about whether investment trusts will be able to outperform unit trusts going forward. One of the great claims of the investment trust industry is that in a falling market managers of closed end funds do not have to dump their best stock to meet redemptions.
There are unit trust investors who remember their funds failing to spring back to life as the markets picked up after the 1987 crash and there is a chance this could be repeated in 2001.
A further advantage for closed end funds is that they are able to gear and the Foreign & Colonial Investment Trust is well known for basing a significant part of its returns on borrowing when stock markets fell in the 1970s and then in 1987. These two points of differentiation with unit trusts are going to be increasingly important for the investment trust industry in the future because a further traditional characteristic appears to be dying out Ã broad discounts in a falling market.
Whether or not it is due to the AITC's 'its' campaign or a concerted buyback campaign by trust boards: discounts are surprisingly narrow. The technology sector has been decimated and yet Henderson Technology is on an 8% premium to NAV, Finsbury is on an 18.4% premium and Amerindo Internet is on a 12.8% discount.
Surprising when you consider that Amerindo's share price is now 27.5p and in the last year has been as high as 140.25p, Hendersons share price is now at 217p and has been as high as 576.5p while the equivalent figures for Finsbury are 304.5p and 705p respectively.
A quick look at the conventional investment trusts on TrustNet's website reveals that, of the 280 listed where it is possible to identify the discount or premium to NAV, 38 are on a premium, 82 are on a discount of up to 10% and 70 are on discounts averaging between 10.1% and 15%.
Not at all bad when you consider what has been going on in world markets but not brilliant if you are an investor who was anticipating being able to get access to quality managers on a really substantial discount.
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