By Pascal Dowling The efforts of the investment trust industry to increase its exposure to private ...
By Pascal Dowling
The efforts of the investment trust industry to increase its exposure to private investors appears to be paying off, according to generalist investment trust fund managers.
Simon White, head of investment trusts at Dresdner RCM Global Investors, said the discount on the international generalist trust Brunner has narrowed consistently for some time.
With an average of 9% for the 12 months to 18 January, during which time it hit a low of 17%, on 18 January it stood at 8%, its narrowest over the past 12 months.
White said: "While there are undoubtedly other factors involved in the workings of a discount, in this case increased private investment has had a significant impact.
"The inflow of money from our private savings scheme doubled in 2000, and Isa capital has increased five-fold since 1999.
"In 1999, private savings accounts made up about 40% of the trust's shareholding, by the end of last year this figure had risen to 56%."
He said private investors had an increasing number of routes through which they could invest in Brunner and other trusts.
He added: "An increase in private investment has been facilitated by the introduction of services such as online dealing. The product is available through services such as E*trade and Charles Schwab.
"This has been important because, despite the fact that the figures involved in private dealing are small, the number of deals which takes place is much higher. This higher purchase rate, together with buy-back activity, has the effect of reducing the volatility of the discount."
James Budden, marketing manager of the Witan investment trust, said prolonged volatile market conditions have put trusts in the global growth sector (containing Witan and Brunner) in an attractive position.
He said: "Looking at the historical discount on Witan, it has varied between a minimum of 8% and 15% at its widest, a relatively tight range which is fairly representative of the sector.
"These are long-term investments which offer stable, steady growth, and in volatile conditions they are a good, safe bet."
Budden believes private regular savings accounts have provided additional stability and reduced the discount of the trust. He also felt that private investment has been influential in narrowing its discount over the past year.
On 12 January 2001, Witan was trading at a discount of 9.8%, slightly wider than that of Brunner, which was at 9% on the same date.
Analysts at Credit Lyonnais, while cautious about the direction in which discounts were likely to move in future, were generally in support of currently narrow levels. Analyst Tom Tuite-Dalton said: "Boards and managers are unlikely to want discounts to widen again so they will be keen to market strongly and buy back loose stock.
"In addition, when the generalist trusts have been performing well, and higher beta areas of the market have not, then an excess of institutions wanting to sell is less prevalent, and this is reflected in current ratings."
Like White, Tuite-Dalton believes the internet and the rise of online dealing will continue to have a positive effect on discounts. He also feels the Isa season, and associated advertising and promotions, should enhance demand for the trusts.
The 'its' campaign, he believes, is playing a part in maintaining public awareness in the sector.
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