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What does the future hold for investment trust activism?

Biotech trusts top performance charts in February

Lauren Mason for Investment Week

What does the future hold for investment trust activism? – QuotedData’s James Carthew shares his views

An active year for trust boards

According to NAVF’s website, the management team will pursue “multiple activist strategies” including communication with management teams and boards, putting company representatives on the board of investee companies, making shareholder proposals and tender offer bids.

NAVF is now the second Japanese small-cap investment trust to exercise activism as part of its investment process, with AVI Japan Opportunity (AJOT) having launched in October 2018.

Activist investment trusts typically hold a significant proportion of each company’s shares within their portfolio, with the view to engage with their management teams to improve the firms’ governance or streamline their operations.

The stocks chosen tend to be value plays whose share prices have lagged, and the trust manager aims to work closely with the company to boost the value of their shares again.

Typically, these managers will invest in companies that are further down the market-cap spectrum so that they can hold a more significant percentage of the business.

Private equity trusts: What is the market missing?

“Activist funds make their own luck,” James Carthew, head of investment company research at QuotedData, said.

“If they spot a value opportunity, a typical value manager would sit and wait for investors to work out it is cheap, whereas the manager [of an activist trust] crystallises the value of their holdings by going out and doing something.

“This means they do have the opportunity to offer returns above and beyond what the market is doing”.

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