Assets under management in the investment trust space may be on the increase, but new entrants to the market have declined sharply.
Figures from the Association of Investment Companies (AIC) show there were 19 new issues in 2015, but this dropped to just four in 2016. The sharp drop-off could be blamed on market volatility in the wake of the EU referendum result and Donald Trump’s election in the US, but with the market facing similar uncertainty this year, could there be a repeat performance?
Annabel Brodie-Smith, AIC communications director, says: “Investment company fundraising reflects investor confidence in the market, so with the tough markets at the beginning of 2016 and [then]the uncertainty surrounding the Brexit vote and the US election, only four investment companies were launched last year.
“This year we’ve already seen two new launches, which reflect strong confidence with markets reaching an all-time high. It’s very hard to predict future fundraising as so much depends on investor sentiment. Clearly the market is flying high, but as always there are potential threats ahead, including two European elections.”
Simon White, head of investment trusts at BlackRock, agrees that the challenging background for new issuance last year reflected investor nervousness about the economic and political uncertainty.
He says: “Back then it looked as though the Chinese economy might struggle, while the EU referendum in the UK and the US presidential election provided further reasons to wait and hold back. In the end, China eased credit conditions and successfully reflated, and the results of the referendum and US election did not derail markets as many expected.
“While many political uncertainties remain – not least the string of elections in Europe – it is quite possible that the environment will improve this year. In our own stable, for instance, the BlackRock Frontiers Investment Trust has been issuing shares in a meaningful way in recent weeks, despite a relatively cautious reception to a C-share [issue] last year.”
Simon Crinage, head of investment trusts at JPMorgan Asset Management, points out that in the first two months of 2017 approximately £750m has been raised, “which represents more than a 90 per cent increase over the same period last year”. He adds that there are a number of launches and fundraisings “in the pipeline”.
But Peter Hewitt, manager of the F&C Managed Portfolio Trust, says that the macro situation is likely to become more adverse as the year unfolds.
He points out that while the economy “should be fine”, uncertainty over the nature of Brexit might undermine financial markets and sterling.
“Confidence, which is already in short supply, could evaporate. Investor sentiment among the buyers of investment trusts is extremely cautious, so being persuaded to take a risk on a new offering – especially an equity trust – will be difficult,” Mr Hewitt says.
