From MoneyWeek · · 2m
Investment trusts: Light at the end of the tunnel
After years of rising discounts and activist pressure, investment trusts are showing real signs of recovery.
In brief
After years of rising discounts and activist pressure, investment trusts are showing real signs of recovery. Investment trusts are recovering from recent challenges through narrowing discounts, new regulatory clarity, and structural reforms that make them more attractive to investors. Originally reported by MoneyWeek.
Investment trusts face tough years
Rising interest rates, cost-disclosure problems, and tech market dominance pushed discounts to 18.8% by October 2023, triggering activist shareholder involvement.
Discounts are finally narrowing
Investment trust discounts have fallen from 18.8% in October 2023 to 11% by end of July 2024, as boards pursue mergers, buybacks, and fee cuts.
Fundraising is making a comeback
In the first half of 2024, Seraphim Space raised £137 million, while TwentyFour Income Fund and Invesco Bond Income Plus raised £98 million and £85 million respectively.
Cost disclosure rules finally fixed
The Financial Conduct Authority updated cost disclosure rules to recognize investment trusts' unique characteristics, removing artificial expense barriers that deterred wealth managers from buying them.
New rules protect against activist overreach
The FCA proposed rules to prevent activist shareholders like Saba Capital from seizing board control to become managers, protecting other shareholders' interests.
Pension schemes unlock new demand
The new Pension Schemes Act allows pension funds to use investment trusts to meet private asset requirements, opening opportunities in infrastructure, renewable energy, and property.
Long-term performance remains strong
Investment trusts returned 15%, 26%, and 148% over one, five, and ten years to July 2024, outperforming sister open-ended funds in 77% of cases over a decade.
“the average investment trust has returned 15%, 26% and 148% over one, five and ten years respectively”
Dividend heroes offer income stability
Twenty investment trusts have raised dividends every year for over 20 years by retaining up to 15% of income and using capital profits to enhance payouts during market downturns.
Marketing push targets younger investors
The Association of Investment Companies will launch a campaign next year to increase awareness of investment trusts among millennials and Gen Z.
Here's the gist
Investment trusts are recovering from recent challenges through narrowing discounts, new regulatory clarity, and structural reforms that make them more attractive to investors.
