JPMorgan Asian Investment Trust has announced proposals to change its discount management and dividend policy. The trust says that its board has been disappointed and concerned by the widening of the Company’s discount over the year particularly against the background of exceptional investment performance. The trust has a continuation vote at its AGM on 2 February 2017.
The trust’s board says that it has been its stated objective, for a number of years, to stabilise the discount at no wider than between 8 and 10 per cent. range under normal market conditions. However, the trust’s discount was consistently higher than 10 per cent. over the financial year and the board says that it has, for some time, been actively considering the current discount control policy, which it says is not effective on a stand-alone basis.
The board says that the two key mechanisms that it has deployed over the past few years to try to reduce the discount have been periodic, semi-annual, tender offers and more regular share buybacks. With regard to the tender offers, the board says that its experience has been that, whilst offering liquidity to those shareholders electing to participate, tenders per se at tight discounts were not having a measurable effect in reducing the discount, were mainly subscribed by larger institutional holders and not favoured by most shareholders, were delivering nugatory NAV uplift to remaining shareholders and at the same time were shrinking the size and consequently the market attractiveness of the Company. The issued share capital has contracted significantly over recent years, mainly as a result of tender offers, and the board says that it believes that this contraction has been detrimental to the attractiveness of the trust in the market. With regard to buybacks, the Board says that it and its advisers concluded, over the course of the past year, that market conditions were such that there was no certainty that conducting share buybacks on a standalone basis would have a lasting, or even temporary, impact in reducing the Company’s discount. Reflecting this, no share buybacks were enacted by the trust in this financial year.
As the Board remains dissatisfied with the Company’s current discount level, both in absolute terms and relative to some of its peers, it has been actively considering other approaches for reducing the discount on a sustainable basis. It says that the bulk of new demand for investment trust shares now comes from retail investors and that, set against the background of the low yields now available from many asset classes, these new investors seem particularly interested in shares that offer an attractive, predictable, and regular dividend. With this in mind, the Board is proposing a new dividend policy under which it aims to pay, in the absence of unforeseen circumstances, a regularly quarterly dividend equivalent to 1 per cent. of the trust’s NAV on the last business day of each financial quarter, being the end of March, September, June and December. This dividend will be paid from a combination of the revenue and capital reserves. The Board will propose a resolution at the Annual General Meeting to amend the Company’s Articles of Association to allow the Company to distribute capital as dividends and to implement this new dividend policy.
This proposed change in dividend policy will not be accompanied by a change in the investment policy of the Company. The Board takes the view that any demand placed on the investment managers to seek a higher income yield from the portfolio would be at the expense of the total returns available to shareholders. The board says that, by dissociating the dividend policy of the Company from the split of capital and revenue returns generated from its current investment policy, it expects to attract new buyers for Company’s shares, whilst maintaining the portfolio’s ability to generate attractive total returns with a low level of attrition to the capital base of the Company. The Board expects that a combination of this new dividend policy, alongside the more traditional and consistent use of share buybacks, will be effective in tightening the discount at which the trust trades to a level no wider than the 8 to 10 per cent. range.
JPMorgan Asian proposes new dividend and discount management policies in advance of continuation vote : JAI