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We Need to Talk About Investment Trusts

23rd June 2023

This is the introductory Crescendo of our forthcoming six-part series on what to do about the current malaise impacting a sector we have always been huge supporters of. This may be a difficult read for some and may come across critically. We want to reassure everyone that our intentions are good: We care deeply about the Investment Trust sector, it has given our investors access to world class managers and asset classes that would ordinarily only be available to the wealthiest part of society via Private Funds. This exposure has been a huge contributor to our three Funds’ strong long-term performance.

It is our belief that too few stakeholders are aware of how bad the situation has become, and we are concerned that stakeholders with the wherewithal to impact the sector positively are either too complacent, unaware of the unintended consequences of their actions or simply unaware of how serious the current situation is. At the heart of the problem is the increasing evidence that discounts are becoming entrenched. The purpose of this six-part series is to try to come up with some recommendations for how the situation could be improved. The end-goal MUST be to create an environment where investment companies and trusts can trade on premia for long periods.

We have certain core beliefs, and these will form the pillars on which we build our arguments in the forthcoming series:

The purpose of an Investment Company / Trust being listed is threefold:

  • to access growth capital
  • to provide access to world class managers and asset classes that investors would not otherwise be able to invest in
  • exploiting the closed-ended structure to deliver superior performance

Investment Trusts are not “Funds” in the same way open-ended Funds are “Funds”. There is a share price and a Net Asset Value. The stock market provides a mechanism that intrinsically discounts any costs associated with maintaining and growing the NAV. The Investment Trust is thus not a substitute or rival to the open-ended Fund. It is a fundamentally different and complementary construct.

Our series of Crescendos over the coming weeks will be in five further parts under the following headings:

  • Why are discounts currently so wide and why does it matter?
  • The IPO process
  • Alignment of interests and structure
  • Capital Allocation and Corporate Activity
  • Relevance and communication

We end with a Crescendo outlining our recommendations. We think it is important to not just point out flaws but suggest ways forward. In doing so, we recognise that we do not have a monopoly on wisdom. We are certain we have either missed something or that others will disagree.

We hope you enjoy the next few Crescendos, and we would welcome feedback and engagement.

Ben Conway – Head of Fund Management

For professional advisers only. This article is issued by Hawksmoor Fund Managers which is a trading name of Hawksmoor Investment Management (“Hawksmoor”). Hawksmoor is authorised and regulated by the Financial Conduct Authority. Hawksmoor’s registered office is 2nd Floor Stratus House, Emperor Way, Exeter Business Park, Exeter, Devon EX1 3QS. Company Number: 6307442. This document does not constitute an offer or invitation to any person, nor should its content be interpreted as investment or tax advice for which you should consult your financial adviser and/or accountant. The information and opinions it contains have been compiled or arrived at from sources believed to be reliable at the time and are given in good faith, but no representation is made as to their accuracy, completeness or correctness. Any opinion expressed in this document, whether in general or both on the performance of individual securities and in a wider economic context, represents the views of Hawksmoor at the time of preparation and may be subject to change. Past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you originally invested. FPC1113.

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