Husselbee: No value in mainstream trusts

Generalist investment trusts failing to attract investors as macroeconomic headwinds grow.

North’s John Husselbee believes there is “no value” in traditional investment trusts at present as macroeconomic headwinds cause investors to worry about liquidity and groups shelve plans for closed-ended launches.

Husselbee said income trusts in particular are overvalued as discounts tighten following growing demand from investors for dividends.

The multi-manager said he is not surprised sentiment is poor and added investors are looking for liquid investments in an anaemic growth environment.

“The macroeconomic headwinds such as the high oil price are making investors cautious, and with this uncertainty they are not going to invest in areas of illiquidity such as an investment trust,” said Husselbee.

“There is not a great deal of value in the space at the moment, particularly within traditional global trusts. They are facing a lot of competition from OEICs and ETFs, which have a lower tracking error.

“With investors in cautious mode they would rather invest in liquid type products so if they are looking for income there are plenty of OEICs to choose from.”

The investment trust universe has seen a number of prospective fund launches shelved in recent weeks, while top-up offers so far this year have disappointed.

Last week Invesco Perpetual axed plans to launch a global equity income trust after failing to drum up enough support, while Henderson’s International Income launch flopped at the fundraising stage, falling short of its minimum target of £49m by £7.5m.

Meanwhile, J.P. Morgan’s C-share offer for its Global Emerging Markets Income trust, run by Richard Titherington, raised just £26.4m, far below its £150m maximum.

In contrast, specialist mandates such as Neuberger Berman’s recent Global Floating Rate Income trust have proved popular, raising $507m, and Husselbee said this shows appetite for niche or unique trusts remains strong.

“This trust is a prime example of what an investment trust is all about as it is a mandate which an investor cannot access themselves,” said Husselbee.

Ian Sayers, director general of the AIC, agrees specialist trusts will continue to thrive as they have less competition with which to contend.

But he added it is difficult for income trusts to stand out in an already crowded marketplace.

“I think with a potential launch it is important to have something new as in a sector where a lot of the trusts are trading on discounts, investors will just look to pick up shares in the secondary market,” said Sayers.

“Specialist trusts will remain popular as the nature of closed-ended structures ensure the companies do not have to offer redemption on demand.”

He added investment companies may be suffering a hangover from last year’s fundraising which saw 17 new launches, with £4bn of new money raised in total.

“The fundraising goes in cycles and I expect to see a lot more in the sector by the end of the year,” said Sayers.

“I still think income trusts will remain popular in a low interest rate environment but when rates do rise the demand could decline.”

Alan Brierley, an investment trust analyst at Collins Stewart, also takes the view trusts that are non-specialist will struggle to differentiate themselves. 

“You look at a trust like Murray International which over the last seven years has had a total return of 8%-10% above its benchmark – so why would an investor buy a new issue when trusts in the sector have good performance records?” said Brierley

“The last couple of launches have not captured the imagination but I do believe if it is the right idea at the right time with a recognised manager then you will see fundraising increase.”