Greenwood plans investment trust of investment trusts
Iimia, a UK-based investment manager, is launching a London-listed investment trust of investment trusts that will aim to outperform open-ended funds of funds by taking advantage of narrowing share price discounts, as well as increasing net asset values (NAV).
Nick Greenwood, CIO of Iimia, will use the flexibility of the closed-ended vehicle to run a more concentrated version of his current open-ended product, the Iimia Accelerated fund.
The Accelerated fund has delivered a total return of 44% since launch on 30 April 2003 to the end of January and is ranked second in its Active Managed sector peer group.
The Oeic"s benchmark, FTSE Investment Companies, delivered 27.7% over the same period. It holds 40 stocks, whereas the new product will have 25. The investment trust sector comprises about 600 securities and more than £57bn of funds under management.
Daniel Lockyer, a fund manager at Iimia, said that by being closed-ended, the trust can hold conviction stocks without the risk of redemptions forcing a sale.
"For example, within the Oeic we hold six or seven zeros - a share class of split capital investment trusts that promise a fixed capital return - but in the investment trust we will probably hold only two, Royal London UK Equity & Income zeros and one other."
The investment trust will also use limited hedging to reduce unintended risks, such as currency or broad equity market exposure. In addition, the firm may use limited gearing in order to enhance returns to shareholders.
Greenwood, who joined Iimia last year from stockbroker Christows, said: "There are few investors who specialise in this sector, which means that inefficient pricing is common. Many good quality trusts sit on unusually wide discounts, and good managers can be overlooked."
He added that the fund can benefit from a market re-rating of the stock narrowing the discount, as well as an increase in the NAV. Lockyer said: "Closed-ended funds tend to outperform their unit trust peers for this reason, unless it goes wrong and NAV falls and the discount widens."
The trust"s objective will be to produce a consistent absolute return, rather than perform against an equity-based benchmark. Its charging structure has a 0.5% annual management charge based on the trust"s share price, rather than NAV.
In addition, the manager will receive a fee for any performance higher than Libor+2% and the amount will be 15% of the outperformance, subject to an increase in share price.
Iimia aims to raise up to £30m for the UK-domiciled and listed trust through an institutional placing finishing at the end of 31 March, after which time the shares can be bought on the secondary market.
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