Drayton trust rebels out-voted

The expected shareholder rebellion against proposals to reconstruct the old Drayton Far Eastern investment trust fizzled out on Tuesday. At an extraordinary meeting, shareholders voted overwhelmingly in favour of the proposals by the managers, Invesco, to split the trust in two, forming a Japan fund and a fund investing in Asia outside Japan.

Assuming a liquidator is appointed at a further meeting on 10 July, the assets of the old Drayton Far Eastern will be transferred to the new Invesco Tokyo Trust and the Invesco Asia Trust.

Shareholders still have a last chance to throw a spanner into Invesco's plans if they choose to exercise an obscure right under liquidation legislation to demand cash rather than shares in the new trusts. Such a move may prove not to be in their best interests, however.

Invesco's plans, first mooted last year, have already achieved their intended effect of cutting the discount to net assets on the hitherto poorly-performing Drayton Far Eastern. From a typical level of about 12 or 13 per cent, the discount has more than halved to around 5 per cent on a share price down 0.75p at 145.75p yesterday.

The managers have plainly struck a chord with shareholders who increasingly want to focus their portfolios on particular geographical areas. That stems from the clear differences between the sophistication of the Japanese market and the rest of Asia. The strategy of the new Tokyo trust will be to seek out undervalued, large-capitalisation stocks in a market Invesco thinks is looking fairly valued. By contrast, the Asia trust will initially continue with a defensive strategy that has proved its worth over the past 18 months in the light of the problems in Mexico.

Shareholders are being offered a share in each new trust on a one-for- one basis with their existing holding in Drayton Far Eastern, with warrants on top. The brokers Credit Lyonnais Laing estimate the warrants could be worth about 13-14p a share. With a net asset value estimated at 153p, that puts the underlying discount back at around 13 per cent and suggests the proposals are worth backing.