Over £700m in deals produced a record year, but some say more mergers need to take place
Jessica Tasman-Jones, Portfolio Adviser, 15 Feb 22:
Investment trust boards have been accused of inertia when it comes to consolidation even after 2021 produced a record five deals worth £708m.
This month, shareholders in beleaguered UK Mortgages discovered the underperforming strategy was set to merge with Twentyfour Income Fund, run by the same manager, creating a cheaper and more liquid vehicle.
That means £2.2bn worth of mergers are already pencilled for 2022, thanks to the merger of JP Morgan Growth and Income and Scottish Investment Trusts due to complete by the end of Q1. In the last decade, there have been no more than two mergers in any given year and there was zero activity between 2014 and 2016…
Too many sub-scale investment trusts trading at discounts
But Jefferies says the pace of consolidation in the investment trust sector remains too slow.
Already this year, the Strategic Equity Capital board has poured cold water on a potential £350m tie up with Odyssean, which runs a similar UK small-cap strategy…
The number of professional investors willing to buy investment trusts smaller than £150m is shrinking, according to Winterflood…
We should focus on smaller investors
But not everyone agrees bigger is better.
QuotedData head of investment companies James Carthew says: “However much the big private client brokers may bleat about needing larger more liquid trusts, the reality is that they have become too large and unwieldy to invest in the sector, and we should wave them goodbye to focus more on the needs of smaller and retail investors.
“Size for size’s sake risks cutting managers off from the types of exciting but less liquid opportunities that can help drive superior performance and are ideally suited to closed-end structures.”
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