Investment trust sectors, neon sign saying Change, Photo by Ross Findon on Unsplash

AIC Revamps Investment Trust Sectors

After a year of deliberation, the AIC has just revealed its new sector definitions for investment trusts. It’s a major shake-up and looks like a big improvement from what I have seen so far.

These sectors can help us compare like with like, but they need tweaking every now and then. The “Flexible Investment” sector was introduced in early 2016, for example. It now consists of around 20 trusts, most of which were previously categorised as “Global”.

This revamp is much more wide-ranging. The press release is here and it summarises the major changes. In short:

  • 31 sectors are not changing their name;
  • 15 are being renamed (although most of these are fairly cosmetic like “Sector Specialist: Infrastructure” becoming just “Infrastructure”);
  • 13 are new (about half of these come from breaking down the property and debt sectors into greater detail); and
  • 7 have disappeared (if my sums are correct, although these aren’t listed in the press release).

There is also a new page on the AIC website which defines what each sector is (rather too briefly in many cases) and which companies are in it.

Under the old system, I think 80% or more of a trust’s assets had to be invested according to the sector definition for it to qualify. Presumably, that still applies, although the press release doesn’t make that clear.

These changes all take effect on Tuesday, 28 May (half-term week for those of us still afflicted with school-age children).

Switcheroo

It looks like quite a lot of investment trusts are moving sectors as well, even when the sector name isn’t changing.

I see Independent Investment Trust is moving from Global to UK All Companies, which seems sensible.

Numerous small-cap investment trusts are moving around. For example, Aberdeen Smaller Companies Income moves from “UK Equity & Bond Income” to “UK Smaller Companies”. Acorn Income, a similar small-cap trust which I looked at a few weeks ago, is staying in “UK Equity & Bond Income” for some reason.

The “Global Smaller Companies” sector has had a major line-up change, which is handy as it confused me no end when I looked at it a few months ago.

Out goes Oryx and Marwyn (they both move to “UK Smaller Companies”) and in come BMO Global Smaller Companies, Herald, Edinburgh Worldwide and North Atlantic Smaller Companies.




New sectors

Among the new sectors are “Royalties”, which just includes Hipgnosis Songs at the moment, and “Growth Capital”, which is for non-controlling shakes in early-stage companies.

“Growth Capital” will include the recently launched Schiehallion, Merian Chrysalis, and Woodford Patient Capital.

I can see some confusion between “Growth Capital” and “Private Equity”. The latter also invests in unquoted shares, so perhaps a tighter definition of these two sectors would be useful.

No doubt quite a few other trusts are moving house as well, but the ones above are just those which I have noticed so far.

It would be helpful to see a list of all the companies changing sector in due course. The AIC provides a useful spreadsheet of investment trust corporate activity. This normally includes sector changes and it is updated monthly, so perhaps the next one on 1 June will clarify who’s moving where.

Why make the change?

Ian Sayers, the Chief Executive of the AIC, said:

We undertook this review to ensure that investment company sectors accurately reflect the shape of the industry today. Recent years have seen significant growth in investment companies investing in alternative assets, such as property, debt and infrastructure and the emergence of new asset classes such as leasing and royalties.

Our new sectors allow investors to find and compare companies with similar characteristics easily. I’m confident the new sectors will play a useful role in helping inform investors’ decisions.

Which seems fair enough. Some of the old definitions were certainly struggling to keep up with some of the new funds launched in the last several years.

Overall, this looks a good step forward although I’m sure I will looking for trusts in their old sectors for a few months afterwards!


Note that I may own some of the investments mentioned in this article. You can see my current holdings on my portfolio page. Nothing in this article should be regarded as a buy or sell recommendation as this site is not authorised to give financial advice and I'm just a person writing a blog. Always do your own research!


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