Numis Securities Charles Cade reveals why he thinks recently launched closed-ended portfolios in the alternative debt space should avoid the fate of similarly vaunted vehicles in previous years.
Newly launched investment trusts are more likely to weather potential market headwinds unlike examples in the past, according to Charles Cade (pictured), head of investment company research at Numis.
At times in the past, it has been recently launched trusts – which have usually come to market due to sheer demand from investors wanting exposure to new hot investment trend – that have been the first to be wound up as market conditions change.
The investment trust sector is often praised for its constituents’ longevity with some well-known ITs launched decades (and sometimes more than a hundred years ago) still performing strongly.
However, initial public offerings (IPOs) for popular investment trends have tended to come in waves with many newly launched trusts ending up closed, merged or wound-up. In fact, only about one in four of those launched between 2000 and 2009 (326) have survived in their original form.
One of the bigger trends in the space in recent years has been a spate of launches seeking to provide ‘alternative income’ exposure and 2015 in particular was a bumper year which saw many new portfolio names on the London market.
In the first three months of 2016, however, there has been the lowest number of investment trust launches since confidence tentatively returned to markets in early 2009 from the depths of bearishness induced by the financial crisis.
This was reflection of severe volatility in both equity and bond markets, says Cade, as well as a widening of many discounts, particularly among the nascent alternative income portfolios which raised significant amounts of capital in recent years.
“The lack of IPOs in 2016 to-date could be viewed as a sign that the current phase of alternative income IPOs has come to an end,” he said.
“In our view, however, there remains strong demand for funds that can deliver a predictable yield, as reflected by the number of secondary issues that are still taking place. There is inevitably a threat that the appeal of some mandates will wane once interest rates start to rise, as this is likely to lead to a shift in asset allocation by investors.”
Number of annual invesmtent trust IPOs since 2000
SOURCE: Trustnet
