Weekly wrap: discount hopes, veteran manager under ‘close review’ and more

Developments in the world of investment trusts this week include a regulatory change that could narrow discounts and boost share prices, as well as a big purchase of shares by managers of one trust and a warning to the manager of another that his board is keeping a close eye on him.

Hope for discounts as ‘misleading’ cost figures suspended

One of the reasons for the large discounts on many trusts, such as those that invest in private equity or infrastructure, has been the requirement for trusts to disclose charge figures that many experts regard as misleading.

They say the charging methodology imposed on them by a regime that dates to the EU era in effect ‘double counts’ certain costs. Now the City regulator and the government have suspended the rules pending the introduction of a new regime.

Analysts welcomed the move and said it could have a material effect on discounts. Iain Scouller of Stifel, the stockbroker, said: ‘We think the removal of the flawed cost disclosure rules does remove a barrier to some retail investors and wealth managers from investing in the listed companies sector.’ He cautioned, however, that other influences, such as higher interest rates and ‘inappropriate portfolio structures’, had contributed to the widening of discounts among ‘alternative’ funds.

Numis, a rival firm, said: ‘We believe that this should remove a meaningful headwind for the sector, particularly for alternative assets which have been sold or overlooked by large wealth managers and multi-asset funds due to artificially high KID (key information document) costs. In some cases these have made ICs (trusts) uninvestable. We believe that the measures have the potential to put [investment trusts] back on the radar of these investors, which in our view could have a meaningful impact on the sector over the short to mid-term.’

European Opportunities manager attracts board scrutiny

Alexander Darwall, the veteran manager of the European Opportunities trust, has been told by the trust’s board that it is keeping him under ‘close review’.

In the annual report published last Friday, the chairman, Matthew Dobbs, told shareholders: ‘We are confident that the company is well positioned to offer an attractive investment proposition. We are not, however, complacent and we acknowledge that the five and three-year relative returns have been below par. We shall continue to keep the company's performance, and our investment manager, under close review on your behalf.’

Trust managers invest £400,000 in its shares

Two managers of Supermarket Income REIT have each invested £200,000 in the trust’s shares. Ben Green invested last week and Steven Windsor did the same on Monday.

Trusts escape damage from ‘Carillion-style’ collapse of contractor

ISG, a construction company and government contractor, went into administration last Friday. According to analysis by Stifel, none of the London-listed infrastructure funds had any exposure to projects in which ISG was involved.

‘Having spoken to the listed infrastructure funds, we are pleased to see that none of them have any exposure to ISG. However, this latest failure does highlight the importance of sub-contractors to the PFI (private finance initiative) projects,’ the broker said.

It added: ‘This is the biggest insolvency in the construction sector since Carillion in 2018. Investors will remember that the Carillion failure did cause some material issues for the listed PFI funds.’

Infrastructure trusts include International Public Partnerships, one of our Select 50 funds.

REIT accepts £150m offer from rival

The board of Capital & Regional, a real estate investment trust, has accepted a new £147m offer from another REIT, NewRiver. If the offer is approved by the shareholders of both trusts, Capital & Regional shareholders will receive a mixture of cash and shares in NewRiver.

Important information -

investors should note that the views expressed may no longer be current and may have already been acted upon. Direct shareholdings should generally form part of a well-diversified portfolio of other investments. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Select 50 is not a personal recommendation to buy or sell a fund. The shares in the European Opportunities trust and the Supermarket Income REIT are listed on the London Stock Exchange and their price is affected by supply and demand. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.