New trusts face a shaky start

As the UK stock market is buffeted around on the back of Wall Street, attention is turning to Japan where launches look much more attractive

WITH just three weeks until the end of the tax year, fund management companies have been rushing new investment trusts on to the market in the hope of scooping up any remaining personal equity plan money.

Schroders, Perpetual and M&G have already attracted investments of more than pounds 300m between them. All three investment houses have solid track records that justify investors' faith in them. Chris Macdonald, managing director of London-based independent financial adviser Brooks Macdonald Gayer, says: "Virtually all of Schroders' trusts go to a premium straight away. If you are going to invest in them, it's best to get in at the beginning."

Likewise, Mr Macdonald believes that the M&G and Perpetual trusts will perform well. He says: "A large number of PEP investors are reinvesting the income back into the trust. This will automatically keep demand up for the shares."

But not all new trusts will get off to such a good start. For starters, the fund management company normally deducts the launch costs - typically 4.5 per cent of the amount invested - from investors' money. This means that for every pounds 1 you invest, only 95.5p goes towards buying investments.

Worse still, most trust shares go to an immediate discount compared to the value of the trust's underlying assets - the net asset value. This is usually because demand for the shares has been sated by the initial launch, and there are no new buyers on the market to push the share price up.

Fund managers have tried to compensate for this loss of value by giving free warrants to investors in a new launch. Warrants are a type of security which confers the right to buy additional shares at a fixed price on a specific date in the future.

But sadly nothing in life is free. Kean Seager, of Bristol-based independent financial adviser Whitechurch Securities, says: "When the warrant is exercised, the net asset value of the trust is diluted between more shares, and the share price falls to reflect that dilution."

Mr Seager says it makes better sense to buy trust shares that are already at a discount. If demand for a particular trust increases, its share price will rise and the discount will narrow.

"That way you can potentially benefit twice over - firstly from growth in the assets of the trust and secondly from the share price catching up with the actual value of the assets," he says. "Three or four years ago, many trusts had fallen to a discount of 20 per cent or more, but the average discount has now narrowed to about 7 per cent."

However, not all discounts will necessarily narrow. Mr Macdonald says popularity of the sector is crucial. He cites the US as an example: "The sector performed fantastically last year, but most US trusts are at a discount of 15 per cent or more. This is because investors think the market has peaked." Many investment advisers also believe the UK market is about to peak.

Japan, on the other hand, is the market that investors have been expecting to happen for several years. As a result, mostJapanese and Far Eastern trusts are trading at net asset value or at a premium, making new launches in these sectors look all the more attractive.

FootballGerman sparks three goals in four minutes at favourite No 10 role
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
A long jumper competes in the 80-to-84-year-old age division at the 2007 World Masters Championships
Radamel Falcao was forced to withdraw from the World Cup after undergoing surgery
premier leagueExclusive: Reds have agreement with Monaco
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvHe is only remaining member of original cast
Life and Style
Walking tall: unlike some, Donatella Versace showed a strong and vibrant collection
fashionAlexander Fury on the staid Italian clothing industry
Arts and Entertainment
Gregory Porter learnt about his father’s voice at his funeral
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
Life and Style
Children at the Leytonstone branch of the Homeless Children's Aid and Adoption Society tuck into their harvest festival gifts, in October 1936
food + drinkThe harvest festival is back, but forget cans of tuna and packets of instant mash
Lewis Hamilton will start the Singapore Grand Prix from pole, with Nico Rosberg second and Daniel Ricciardo third
F1... for floodlit Singapore Grand Prix
New Articles
Life and Style
Couples have been having sex less in 2014, according to a new survey
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam