The first half of 2011 has seen some interesting activity in the investment company sector, according to the Association of Investment Companies (AIC). There have been several policy changes, already double the amount in 2010, reflecting the flexibility of investment companies to adjust their mandates as new economic trends emerge.
In marked contrast to 2010, when only three companies embarked on a policy change, eight companies have changed their policy during 2011 so far. Since our last update in early May, these have included Princess Private Equity, Blue Planet International Financials, Securities Trust of Scotland, Martin Currie Portfolio and Pacific Assets.
A number of companies have instigated changes in order to lift restrictions on the geographical location of their investments. Blue Planet International Financials changed their policy and their name (from Blue Planet European Financials) to allow them to invest globally rather than just in Europe. Securities Trust of Scotland is also having a change of focus, changing its remit from UK Growth & Income to an international income focus, with income being something of a key theme in the sector so far this year. The company’s benchmark will change to the MSCI World High Dividend Yield index. The changes will take effect from 1 August 2011. The board of Edinburgh Investment Trust has also voted to increase the level of global investment in the trust from 15% to 20%.
Interestingly, Pacific Assets has broadened its mandate to allow up to 20% of its assets to be invested outside of the Asia-Pacific region, providing that the business of the investee company is focused on the Asia-Pacific market. This illustrates that opportunities linked to growth in emerging markets are also increasingly to be found outside of the region.
At the EGM held on 12/05/11, proposals were approved for Princess Private Equity to amend its investment policy from investing in other funds to investing directly in a diversified portfolio of private equity and private debt investments to achieve long-term capital growth and an attractive dividend yield. Martin Currie Portfolio’s EGM on 23/05/11 saw proposals approved for the company to amend its investment policy from aiming to achieve long-term capital growth in excess of the capital return of the FTSE All-shares index to instead achieve long-term capital growth in excess of the capital return of the FTSE World index through investing in a diversified portfolio of UK and international stocks.
Earlier in the year (and reported in the AIC’s last update) Utilico Investments also changed its policy, from investing primarily in infrastructure, utility and related companies, to investing in undervalued companies with the flexibility to invest in a variety of markets worldwide. Schroder UK Mid Cap changed its investment objective and policy of the company to focus on mid cap equities rather than mid cap and small cap (and therefore changed its name from Schroder Mid and Small Cap.)
Two companies have abolished their performance fees this year. Foreign & Colonial Investment Trust has abolished its performance fee; it has also changed its base annual management fee from a fixed sum to 0.365% of market capitalisation. Schroder UK Growth Fund has also terminated its performance fee and the base management fee has increased to 0.65%. The basis on which that fee is calculated has also been amended so that management fees are not paid on assets financed by borrowings.
It has been a more challenging year for new issues and whilst issue activity amongst existing companies has been by no means insubstantial (see AIC’s last update in May), the uncertain economic outlook is clearly dampening the appetite for issue activity.
However, through a combination of new launches and share issues, GBP1.6bn has been raised in the sector so far this year, according to Numis Securities. New money into the sector continues to reflect investor demand for income and also for some of the more specialist asset classes, such as infrastructure and property.
Thirteen companies have left the sector this year: three of these were split capital trusts which had come to the end of their fixed life, five were in the Hedge Fund sector and three rolled over into other investment companies; Henderson Global Property into Henderson International Income, Eclectic into Utilico and Anglo & Overseas into EP Global Opportunities. A further two companies were liquidated. The AIC does not collate data on share buy-backs but, according to Numis Securities, GBP593m has been returned to shareholders through share buy-backs and a further GBP361m million has been returned to shareholders so far this year via tender offers and redemptions.
Ian Sayers (pictured), Director General, Association of Investment Companies (AIC), says: “In a challenging global economic environment, it’s encouraging to see that Boards have been quick to review their investment policies and where necessary have proposed changes. Not only does this highlight the advantages of an independent Board but also the role for shareholders in voting on these issues. In the approach to RDR investment companies are demonstrating their dexterity, responding to changing economic and investment environments. Despite the economic headwinds, several companies have also conducted successful share issuances, demonstrating demand for Asia Pacific and some specialist sectors.”