Companies ripe for takeover

NEWCOMERS to the investment trust industry are often wooed by the financial stability and the century-old tradition of the sector's leading companies.

But the big general trusts such as Foreign & Colonial, Witan and Scottish Mortgage are a minority. Many of the trusts launched in recent years were much more opportunistic and short-term in their ambitions.Few can expect to survive into prosperous old age.

Some are already approaching their prescribed winding-up dates, while others have failed to fulfil the hopes placed in them and have become vulnerable to takeover or dismemberment.

This has set the scene for ashake-up of the investment trust sector, which could provide good opportunities for experienced investors who can spot likely takeover targets. Hamish Buchan, the investment trust analyst who heads the Edinburgh office of NatWest Markets, said: "The sector is at a point of change. There have been so many issues [of new trusts] that have not been successful. Quite a lot have not been able to get above their issue price."

The shares of poorly performing investment trusts often change hands for substantially less than the net asset value of their underlying investments. This means investors can acquire 100p of assets for, say, 80p. By liquidating the portfolio, say, or changing the investment strategy, predators can sometimes release the additional value to shareholders quickly.

The potential rewards have been demonstrated by Scottish Value Trust, whose manager, Colin McLean, specialises in identifying underperforming funds and prompting a turnaround. Over the past three years, Scottish Value has increased its net asset value by 63 per cent and its share price by 47 per cent.

Mr McLean suggests smaller companies trusts are likely to prove a fruitful area. This is an overpopulated sub-sector with numerous funds on large discounts of up to 18 per cent. Some European and venture capital-type trusts are also vulnerable.

Trusts investing in America have moved on to similarly wide discounts but investors should be more wary of these. The American trusts are reflecting concerns that the US stock market has soared to unsustainable heights.

Numerous investment trusts have undergone changes in their management or capital structure even in the past few months. Peter Walls, an analyst at Credit Lyonnais Laing, said many more were going to come under the microscope in the next couple of years as the younger generation of trusts started to seek shareholders' approval for an extension to their initial lifespan.

John Szymanowski, an analyst at SBC Warburg, expects 1998 to be extremely busy because several split-capital trusts are set to be wound up during the year.

Perhaps the biggest questions surround the future of the two huge European privatisation trusts managed by Kleinwort Benson and Mercury Asset Management. These two funds raised about pounds 1bn when they were launched in 1994, yet their backers have still to see the shares move above the 100p issue price.

The main problem has been the imbalance between the demand for and supply of shares. Mercury European Privatisation (Mepit) has performed reasonably well, yet it still stands at a large discount. Because of the size and profile of Mepit and Kepit, the City will not allow the discounts to remain so large.

Mercury has tried to narrow Mepit's discount by buying in pounds 33.5m shares for cancellation. So far, this has had a negligible effect.

Kleinwort Benson is closely monitoring the progress Mercury makes with its buy-back scheme. It is also trying to increase the strength of demand for Kepit's shares.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
filmPoldark production team claims innocence of viewers' ab frenzy
Life and Style
Google marks the 81st anniversary of the Loch Ness Monster's most famous photograph
techIt's the 81st anniversary of THAT iconic photograph
News
Katie Hopkins makes a living out of courting controversy
people
Voices
All the major parties are under pressure from sceptical voters to spell out their tax and spending plans
voices
ebooks
ebooksA special investigation by Andy McSmith
Arts and Entertainment
Kevin Spacey and artistic director Matthew Warchus at the Old Vic party to honour Spacey
theatreStar's successor at Old Vic theatre admits he's 'allergic to hype'
Life and Style
life + healthVirginia Ironside's dilemma, during Depression Awareness Week
Arts and Entertainment
The median income for professional writers is just £10,432, less than the minimum wage
booksSurvey reveals authors' earnings
News
i100
Life and Style
fashion
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k (DOE): Guru Careers: We are seeking a Pricing Analyst with experienc...

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Sales Team Leader - Wakefield, West Yorkshire

£21000 - £24000 per annum: Ashdown Group: The Ashdown Group has been engaged b...

Ashdown Group: Head of Client Services - City of London, Old Street

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

Revealed: Why Mohammed Emwazi chose the 'safe option' of fighting for Isis, rather than following his friends to al-Shabaab in Somalia

Why Mohammed Emwazi chose Isis

His friends were betrayed and killed by al-Shabaab
'The solution can never be to impassively watch on while desperate people drown'
An open letter to David Cameron: Building fortress Europe has had deadly results

Open letter to David Cameron

Building the walls of fortress Europe has had deadly results
Tory candidates' tweets not as 'spontaneous' as they seem - you don't say!

You don't say!

Tory candidates' election tweets not as 'spontaneous' as they appear
Mubi: Netflix for people who want to stop just watching trash

So what is Mubi?

Netflix for people who want to stop just watching trash all the time
The impossible job: how to follow Kevin Spacey?

The hardest job in theatre?

How to follow Kevin Spacey
Armenian genocide: To continue to deny the truth of this mass human cruelty is close to a criminal lie

Armenian genocide and the 'good Turks'

To continue to deny the truth of this mass human cruelty is close to a criminal lie
Lou Reed: The truth about the singer's upbringing beyond the biographers' and memoirists' myths

'Lou needed care, but what he got was ECT'

The truth about the singer's upbringing beyond
Migrant boat disaster: This human tragedy has been brewing for four years and EU states can't say they were not warned

This human tragedy has been brewing for years

EU states can't say they were not warned
Women's sportswear: From tackling a marathon to a jog in the park, the right kit can help

Women's sportswear

From tackling a marathon to a jog in the park, the right kit can help
Hillary Clinton's outfits will be as important as her policies in her presidential bid

Clinton's clothes

Like it or not, her outfits will be as important as her policies
NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders