Diverse Income (DIVI) could be the next investment trust lining up an exit from the closed-end fund sector as it struggles with investor disinterest in UK smaller companies.
In half-year results the board of the £275m UK equity income trust, which mostly invests outside the top FTSE 100 stocks, said it was looking at replacing the annual redemption facility that has seen shareholders withdraw £224m in the past three years.
While the facility had provided a good exit at close to asset value for investors, it had shrunk the listed fund and impaired the ability of Premier Miton managers Gervais Williams and Martin Turner to “deal in size” in the market, chair Andrew Bell said.
Just over 30% of its shares were cashed in during last year’s window, despite evidence of good performance. In the run-up to this the shares had narrowed their discount to under 4% but had subsequently fallen back to trade 9% below asset value due to insufficient demand.
Having discussed its options with DIVI’s largest institutional shareholders, Bell said the board was considering an active share buyback policy to keep its share price discount low throughout the year, combined with regular continuation votes.
Bell, a former chief executive of Witan investment trust before its merger with Alliance Trust, now Alliance Witan (ALW), added that “discussion has also focused on removing the discount risk altogether by offering shareholders the opportunity to switch to an open-ended fund managed according to the same strategy by the same investment team”.
This could see shareholders offered a rollover into the £318m Premier Miton UK Multi Cap Income fund which Williams and Turner also run.
The option of “open-ending” investment companies struggling with discounts has become a well-travelled path of late. Last year the managers’ other investment trust, Miton UK MicroCap, wound up after repeated redemptions reduced its size to £25m with investors offered their Premier Miton UK Smaller Companies open-ended investment company (OEIC) instead.
Middlefield Canadian Income converted to an active exchange-traded fund last year and Smithson (SSON), the £1.5bn global smaller companies trust run by Terry Smith’s Fundsmith, is about to be liquidated and its assets transferred into a new OEIC. Today European Opportunities Trust (EOT) said it was considering a similar move as part of a strategic review.
The interims showed DIVI underperformed its benchmark in the six months to 30 November. Its underlying NAV total return of 8.5% fell behind the 12.5% gain in the Deutsche Numis All Share index. Since then the trust has rallied 10%, ahead of the benchmark’s 7.5% rise.
Over 10 years to 31 December, shareholder returns of 67.4% have been in line with the benchmark. To the frustration of shareholders, however, the chronic share price weakness has prevented them getting the underlying return of 86.1% generated by the managers.
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