The pounds 15m party for its girls and boys

A campaign to persuade millions of us to use investment trusts will make history - but will it work?
Click to follow
Indy Lifestyle Online
PREPARE FOR one of the most substantial marketing onslaughts in financial services history. The Association of Investment Trust Companies (AITC) is about to launch a pounds 15m campaign to increase the popularity of its products.

The campaign will use posters, television and the press to promote investment trusts in a bid to increase tenfold the 750,000 private investors in this type of product.

In doing so, it hopes to provide investment that will mop up the holdings of institutional shareholders who want to bail out of the sector, while reducing the average "discount" that most trusts trade at.

The "its" campaign, standing for investment trusts, is the brainchild of AITC head Daniel Godfrey. He took the helm last year, a time of growing problems for the sector.

Investment trusts have a company structure and their shares are traded on the stockmarket. Their underlying assets, however, may be worth more or less than the share price, which itself depends on demand.

In recent years, many investment trusts have seen the value of their shares fall relative to their assets - a situation known as the discount to "net asset value" or NAV. This has risen from around 4 per cent to about 13 per cent. In effect, even if the value of your trust's assets goes up, the value of your shares stays flat or falls.

This has dented the popularity of investment trusts, all the more since private investment trust holders only own 30 per cent of the pounds 65bn sector, the bulk being held by institutional investors. Many are considering moving out, but to bail out without finding alternative buyers for the shares would create mayhem - and leave them sustaining heavy losses.

Which is where Mr Godfrey comes in. He has asked the AITC's 230 members to stump up about pounds 25m, around 0.05 per cent of their net asset value, to pay for the campaign.

Witan and Scottish Investment Trust's agreement to contribute its share of nearly pounds 2 million just before the recent deadline has given AITC almost pounds 15.5 million to spend. Foreign & Colonial and Flemings, two of the largest management groups, have also agreed to the funding request.

"We will show the public the value of buying investment trusts," says Mr Godfrey. "They are a good way of getting access to the stock market, you don't have to be a millionaire to sit at this table. We will be showing that with their expert management, the funds are not risky."

The AITC has been trying to sell the "its" idea to member trusts since last September. But not all of them see the need for a generic campaign. Of the total membership, just 144 replied in time, with positive responses from three-quarters.

Some 38 or so members who replied have refused to pay anything, among them funds managed by Aberdeen Asset Management, Jupiter, Schroders and Scottish Value groups.

Some of the "antis" are the split-capital funds with fixed wind-up dates. For them, the idea of a generic campaign to promote trusts over the long term makes little sense. Quite a number do not see any need for a collective campaign and, furthermore, do not think that it will succeed.

"The bulk of our funds have evaluated the proposals, and most have turned it down," says Piers Currie of Aberdeen Asset Management. "Their directors look at what's best for shareholder value. They feel the proposals do not apply to their types of specialist funds."

At Schroders, it was the group's specialist funds that accepted the idea. The broadly based and more popular Income Growth and UK Growth funds voted against, its Japan Growth fund has still to decide and Schroder Ventures International is trying to renegotiate the amount the AITC wants. "We just presented the facts to the boards," says the AITC's Bridget Cleverly. "I can't understand why the two voted against. Their directors could not have felt that a general campaign would work."

At Scottish Value Management, Colin McLean says: "We have not made our decision yet. Personally, I don't feel general advertising will work, that it will be translated into actual buying orders.

"Since last September, trusts have turned a corner, and, for the first time since 1993, we have been outperforming the FTSE All Share Index; Scottish Value itself is up 25 per cent this year. The campaign has been dreamed up to try and reduce the high discounts in the sector. But as long as the trusts' share prices are moving in the right direction, no one minds too much about the discounts."

The AITC will be spending the summer months trying to change the mind of those trusts that have refused to fund its campaign so far. "I expect that at the end of the process, we will probably have increased the size of the chest to some pounds 20 million or so," says Mr Godfrey.

Ultimately, the success or failure of the "its" campaign will depend not on marketing savvy but on performance. Some investment trusts have been undiscovered gems, delivering excellent value to shareholders. Others have been poor performers. In the coming weeks we will be sorting the wheat from the chaff in these pages.

Comments