You might be forgiven for thinking we’re in the middle of a mania for investment trusts, with several high-profile new issues accepting applications at the moment. Surging public interest in the stock market is a classic sign of a bubble, so let’s see how 2018 compares to other years.
Spoiler alert! There doesn’t seem to be too much need to panic at the moment. But 2018 could still end up being the biggest year for investment trust new issues for a while.
I’ve grabbed some data from the AIC website and used it to produce the following table. It shows the amount raised per year and the largest launch of each year, too.
| Year | Number | Total raised (£bn) | Largest new issue | Amount (£m) |
|---|---|---|---|---|
| 2007 | 41 | 6.5 | European Capital | 714 |
| 2008 | 22 | 1.5 | BH Global | 533 |
| 2009 | 9 | 0.8 | Castle Alternative Invest | 355 |
| 2010 | 15 | 1.7 | Fidelity China Special Situations | 460 |
| 2011 | 8 | 0.9 | NB Global Floating Rate Income | 244 |
| 2012 | 10 | 0.9 | Starwood European Real Estate Finance | 228 |
| 2013 | 17 | 3.0 | Riverstone Energy | 710 |
| 2014 | 15 | 2.5 | Kennedy Wilson Europe Real Estate | 910 |
| 2015 | 19 | 3.1 | Woodford Patient Capital | 800 |
| 2016 | 5 | 1.1 | Vietnam Enterprise Investments | 683 |
| 2017 | 15 | 2.5 | BioPharma Credit | 606 |
| 2018 (Jan to Aug) | 13 | 1.3 | Tritax Eurobox | 300 |
You could argue that this doesn’t tell the full story. Many trusts seem to come back to the table for second and third helpings these days, raising substantial sums in the process. These aren’t included in my figures.
The new issues curremtly underway (more details on those below) could easily double the amount being raised in 2018, so we’ll probably end up in the region of £2.5bn to £3.0bn. That would be at the high end of what we’ve seen recently, but not alarmingly so. And we’re yet to see any £500m+ monster new issues so far this year.
You can see the ups and downs of the overall market in this table. The source figures only go back to 2007, but that year is far and away the biggest, both in monetary terms and in terms of overall numbers. Indeed, it’s roughly double the next highest amounts in both cases.
2008 is also notable, with new issues grinding to a spectacular halt in July for reasons I probably don’t need to go into. It then took quite a few years for the new issue market to get going again, apart from the notable exception of Anthony Bolton’s Chinese fund.
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Since 2013, the level of new issues has been remarkably steady. But you can see the poor run the market went through from mid-2015 to mid-2016 (the UK dropped nearly 20% over this period) reflected in the much lower total for 2016.
A key aspect of my own investment strategy is that I don’t think you can consistently time the market. So, I tend to invest little and often. But, on the basis of this flimsy bit of research, the level of new issues could be a half-decent sign of both frothy and unfrothy markets.
I’ve done my bit to pump up the latest potential bubble by writing about both Smithson and Mobius recently. I have applied for the former as well.
Here’s the new issue pipeline right now, to the best of my knowledge:
| Investment trust | Target (£m) |
|---|---|
| Smithson Investment Trust | 250 |
| Mobius Investment Trust | 200 |
| AVI Japan Opportunity Trust | 100-200 |
| Merian Chrysalis | 200 |
| Multifamily Housing REIT | 175 |
I’ve also seen mention of M&G Credit Income looking to raise £250m, but nothing official seems to have been released yet about this. (Update: Mobius only raised £100m and M&G details are now available — see the comments section below for more)
Perhaps there is a little Brexit/General Election effect at work as well. Maybe City folks are advising companies to make hay before any volatility sets in. Although investing is supposedly a long-term pusuit, it’s amazing how many new issues are put on ice by the slightest market wobble.
Investors buying individual stocks are often warned off new issues. And with good reason. They have a limited track record and private equity funds are notorious for off-loading companies they have underinvested in and loaded up with debt.
Investment trust new issues are slightly less risky in my opinion, as you can often look at the track record of the managers who will run them. But they still require a sizable leap of faith. These days, the fashion seems to be for star managers to set up their own firm to launch new self-named funds. The worry then is that they might believe their own hype a little too much.
The odd new issue every now and again is worth considering I think. But I try not to make a habit of it.
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Quick update -- Mobius said this morning that it has only managed to raise £100m, so half of its original target.
https://investegate.co.uk/mobius-inv-trust-plc/rns/results-of-initial-public-offering/201809260718069699B/
That surprised me a little but it might be a sign that Smithson is gobbling up all the demand at the moment. Or the onslaught of negative stories about emerging markets in general has put investors off.
The lack of interest in Mobius might be a good sign for long-term returns however!
M&G Credit Income Investment Trust details have been released this morning:
https://investegate.co.uk/m--38-g-credit-income-investme--mgci-/eqs/publication-of-prospectus/20180926130816ETQNA/
The Company aims to provide regular and attractive income with low asset value volatility by investing in a diversified Portfolio of public and private credit opportunities. Over the longer term, it is expected that the Company will be mainly invested in private debt instruments and that the Portfolio will typically consist of 100+ holdings, with a minimum of 50 holdings. The Company will target an annualised dividend yield of LIBOR plus 2.5% (on the Issue Price) in respect of the Company's first financial period to 31 December 2019 while the net proceeds of the Initial Issue are being deployed. The Company will target an annualised dividend yield of LIBOR plus 4% (on the opening Net Asset Value per Ordinary Share) in respect of each financial year thereafter.*
It looks like the majority of distributions will be classed as interest for private investors, rather than dividends.
The Directors intend to apply the ‘‘streaming’’ regime to distributions of portfolio interest returns paid by the Company, such that these distributions are expected to be designated as payments of interest. If appropriate, in addition to, or instead of, interest distributions, the Company may also pay ordinary corporate dividends.