Investment trusts raise record assets in 2015
The investment company sector raised a record £5.2 billion this year, while discounts narrowed to historic lows.
Net fundraising for investment trusts was a record £5.24 billion in 2015, 56 per cent higher than the last record set in 2007.
According to the Association of Investment Companies (AIC), the secondary market drove the total, with trusts issuing £4.81 billion in new shares this year – the highest level ever. Companies in specialist sectors attracted the biggest inflows, with peer-to-peer lending trust P2P Global Investments raising the most at £671 million via two share issues.
A number of Money Observer Rated Funds also enjoyed a fruitful year. In the global sector Scottish Mortgage and Witan issued £172.9 million and £81 million of new shares respectively, while in the UK equity income sector Finsbury Growth & Income raised £124 million and City of London raised £69 million.
New launches raised £2.67 billion, with the largest, Woodford Patient Capital, raising a record £800 million in April. A total of 17 new investment trusts launched onto the market in 2015, the majority in higher-yielding sectors such as property and debt.
The first investment trust launched by Schroders in 10 years, SREIT will focus on ‘targeted growth cities’ across continental Europe, according to the manager. Once it is fully invested the trust will pay a 5.5 per cent annual dividend.
The AIC says that share price discounts to net asset value also narrowed to record low levels across the investment trust universe this year, with the average dropping to 2.4 per cent in October before widening out to 3.2 per cent by the end of November.
Ian Sayers, chief executive of the AIC, comments: ‘2015 has been a significant year for trusts with record net fundraising and secondary issuance, while money leaving the sector was at its lowest in 12 years.
‘With all this demand it’s not surprising that discounts continue to trade at historic lows, and some investment company boards whose shares are in demand will be considering how they manage the discount if sentiment turns next year.’
Assets across all investment trusts, assets peaked at £137 billion in May – another record level –before settling at £133.6 billion by the end of November. This is a significant increase on industry assets of £122 billion at the end of 2014.
Net asset value
A company’s net asset value (NAV) is the total value of its assets minus the total value of its liabilities. NAV is most closely associated with investment trusts and is useful for valuing shares in investment trust companies where the value of the company comes from the assets it holds rather than the profit stream generated by the business. Frequently, the NAV is divided by the number of shares in issue to give the net asset value per share.
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.