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Surviving the investment trust shake-up

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Surviving the investment trust shake-up

By Dave Baxter

Investors Chronicle, 7 Aug 2020

A ‘Darwinian’ process of corporate action and shareholder scrutiny has long prevented the UK’s investment trust universe from getting bloated. The sector consisted of just 395 closed-ended funds at the end of June, according to Association of Investment Companies (AIC) data. By contrast, UK investors have thousands of open-ended funds to choose from.

Unsuccessful trusts do not tend to survive for long. Those that underperform and fail to build up a good level of assets or appear to lose their relevance tend to face the threat of closure. Purges of the sector can often occur at times of crisis, with many names shutting amid the financial crash. Survival rates can reflect this fact: of 326 trusts that launched between 2000 and 2009, 272 have not survived in their original format, according to Numis analysis…

The shake-up

The investment trust sector has already witnessed a great deal of change in 2020, especially in some areas considered to be niche. Shareholders recently voted against the continuation of Gabelli Value Plus (GVP) and Secured Income (SSIF). The board of the former must put forward plans to wind up, reorganise or reconstruct the trust, while Secured Income will be wound up with cash returned to shareholders…

The industry also witnessed a less common occurrence at the end of July, with the news that UK equity income trust Perpetual Income & Growth (PLI) would merge with Murray Income Trust (MUT), subject to shareholder approval…

A wave of corporate action can ultimately be good news for shareholders in many respects, because a wind-up will offer a way out for those feeling disgruntled with poor performance…

“If you’re looking at which fund to buy, charges shouldn’t be the be all and end all,” says James Carthew, head of investment company research at Marten & Co. But he adds: “It’s more relevant when you have tiny trusts and you get charges creeping up to above 2 per cent.”

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