Invesco Global Equity Income (IGET) has capped off a remarkable turnaround, clinching a merger deal with underperforming Franklin Global Trust (FRGT) that could swell its assets to £445m 18 months after it emerged from the reconstruction of Invesco Select.
IGET, a £269m trust that consolidated the three former Select portfolios in May last year, has agreed terms to issue new shares to Franklin Global shareholders who want to combine with the fund run by Stephen Anness and Joe Dowling.
Franklin Global, the former Martin Currie Global Portfolio, has shrunk to £182m from £300m in the past five years, weakened by underperformance of its portfolio run by Zegrid Osmani and a zero-discount policy that has seen the company buy back a significant number of its shares.
The company will enter a voluntary liquidation with shareholders offered either a cash exit at a 2% discount to net asset value (NAV) or a rollover into IGET expected to take place next February.
FRGT chair Christopher Metcalfe, who will join IGET’s board, said IGET was chosen after a “thorough review” of all the options. “We believe IGET’s proposal offers many attractive features, including enhanced scale, improved liquidity, a strong record of investment performance, as well as a full cash alternative for shareholders.
“The board intends to roll its holdings into the new, enlarged IGET vehicle and looks forward to the future with confidence,” he said.
Invesco will contribute to costs by waiving its management fee for a year on money transferred from FRGT.
Sue Inglis, chair of IGET, said its shareholders would benefit from increased scale that would lower costs and make it easier to attract new investors and grow.
“We are delighted that the proposed combination will provide benefits for shareholders of both companies, creating a substantially larger, more liquid company with an outstanding track record, a predictable and attractive level of dividend income and competitive running costs,” she said.
IGET is currently top of the small Global Equity Income sector having delivered underlying investment returns of 74.5% and 140.3% over three and five years. These have underpinned total shareholder returns of 103% and 152% over the same periods.
With the added attraction of a 4% dividend policy, the shares have moved to a small premium above NAV. This has enabled the company to raise £39m since April, at a time when many equity trusts stand on discounts and are unable to issue shares.
By contrast, over three and five years FRGT has generated portfolio returns of just 20% and 13% to rank ninth out of 10 global growth equity trusts. That modest rise in assets with a 1.1% dividend left shareholders with total returns of 21% and 7%.
It is the latest investment trust to draw a line under its problems. Yesterday Smithson (SSON), the £1.6bn global mid-cap trust overseen run by Fundsmith, announced it would convert into an open-ended fund to eradicate its long-standing share price discount.
