Investment trusts are on the up

2011 AND BEYOND

Efforts to narrow discounts and improve performance made 2011 a good year for investment trusts. What’s next?

This year has been a busy one for the investment trust sector. Market volatility is forcing many trusts to take a more global outlook, while the launch of junior individual savings accounts (JISAs) in November (see box overleaf) is also of interest to trust managers. But what’s in store beyond 2011?

A longstanding criticism of the sector has been the unpredictability of discounts. This has led to some hair-raising situations for investors in the higher-risk trusts, where the value of a trust’s holdings (the net asset value or NAV) has fallen 30%, but the share price discount to NAV has widened much further, creating a double hit. But there are signs of a longer-term improvement in the discount problem after Alliance Trust, the UK’s largest trust, succumbed to pressure from major shareholder Laxey Partners and agreed to buy back some of its shares in an attempt to narrow the discount.

Nick Greenwood, manager of the Miton Worldwide Growth investment trust, says this has been important for the wider sector: “Once Alliance Trust had been bullied into a buyback programme, this influenced the discounts on other trusts.”

NEW DIRECTION There is also momentum among some trusts to improve performance. For example, Andrew Bell, chief executive of the Witan Investment Trust, reports significant changes.

“Over the past 12 months, we have moved away from index investing, towards more cross-border stockpicking and conviction-led managers. We have also increased our exposure to emerging markets,” he says.

A number of other trusts have also sought to become more global in their approach. Edinburgh Investment Trust, managed by Neil Woodford, voted to increase the level of

WWW.MONEYWISE.CO.UK

SPOTLIGHT ON INVESTMENT TRUSTS | MONEYWISE 9