Investment trust launches: This year's hits and misses

Stephen Peters, investment trust analyst at Charles Stanley, looks at some of the winners and losers among this year's new funds.

According to recent research by Numis, £1.4bn of fresh capital into the closed-ended fund sector has been raised in the first half of 2011. This is around a third less than in the same period of 2010, although last year saw the launch of Anthony Bolton’s Chinese Special Situations fund. The biggest launch this year to date has been Neuberger Berman’s Global Floating Rate Income fund, raising £310m.

With many concerned about incipient inflation, secured loan funds such as the NB offering are perhaps not surprisingly being an investment in vogue. One of the very few ways for investors seeking to achieve inflation protection for their income, it has quickly become a very fashionable sector. We are aware of another two potential loan fund launches, despite the fact the super-normal capital returns of 2009/10 have disappeared.

Investors are being asked to decide between the merits of largely illiquid European company issued loans, typically issued as part of private equity buyouts, or more liquid US ‘flow’ names. For those of us not well versed in the sector, it is a tricky decision to make.

Uncertain futures

We were disappointed by the failure of Aberdeen’s Global Emerging Market Smaller Companies fund to raise money. It cannot be easy to launch such a fund in a time when the future was so uncertain – but then, when do investors know for sure in what to invest? Aberdeen is a highly respected investment manager for Asian and EM equities, and surely the consumer demand for goods and services in these fast-growing economies is not going to abate soon.

Many of the unsuccessful launches were not that surprising. Volatility in the Indian stock market at the beginning of the year spooked investors and the three potential launches we saw were shelved. One of these has not been abandoned, and could be welcome competition to J.P. Morgan and Aberdeen’s Indian equity trusts if it was able to raise a fund of reasonable size.

Schroders looked to launch a commodities fund, but despite its historic track record, the way in which it sought to run the strategy did not really resonate with our clientele. A number of healthcare/care home funds also came to discuss their plans with us, but negative newsflow relating to the sector came at an inopportune time.

The asset class is attractive for a number of reasons (inflation linked income again) but we feel it will be difficult for these funds to launch now. Other areas where we have seen proposals that may or may not reach the market include agricultural land, smaller company loans and commercial litigation funding.

Persuasion

At the beginning of the year, the two global equity income funds from Henderson and Invesco were much discussed. Only the former was successful, albeit with a disappointing £42m.