Christian Mayes, Portfolio Adviser, 26 FEBRUARY 2024:
A range of mergers have been announced in the investment trust space in recent times. Among others, the £2.3bn JP Morgan Global Growth and Income trust announced plans to absorb the £71m JP Morgan Multi-Asset Growth & Income (MATE) in January, while last week saw a bidding war break out between Custodian Property Income Reit and Urban Logistics for the £198m Abrdn Property Income Reit.
Meanwhile, Winterflood released its annual survey of its clients earlier this month, which showed that some 64% of respondents believe more investment trusts should actively pursue consolidation, up from 45% last year. Among the reasons given, many argued that the sector contains too many small, illiquid funds..
So, is consolidation a good thing for the trust sector, and do smaller trusts have a choice other than to pursue a takeover?..
Nick Greenwood, who co-manages the £79.3m sized MIGO trust, argues the increased amount of mergers is a ‘survival of the fittest’ scenario.
“The investment trust sector constantly evolves and the rule of natural selection is alive and well. Whether a trust is vulnerable to consolidation will depend on what audience it is playing to,” he says..
James Carthew, head of investment companies at QuotedData, also highlights widening discounts as a significant driver in increased trust M&A. According to the Association of Investment Companies website, the average trust currently trades at a 10.96% discount.
“Boards are more proactive than they have been, which is good news,” Carthew says. “However, more cynically we could argue that advisers – short of lucrative IPO income – are looking for alternative ways to generate fees. Generally, it is healthy that weaker funds are absorbed by more successful ones..
“The real danger is that the industry dances to the tune of a few wealth managers who have themselves consolidated so much that they can no longer offer their customers the same breadth of investment opportunities.”
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