Retail investors hungry for alternative investment trusts

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While research has previously shown their interest in equity trusts, new research reveals they are increasingly allocating capital to alternative trusts, both new and established. 

Investment Week surveyed a sample of 35 investment trusts with £28.7bn in assets under management, representing several different sectors. The research revealed retail shareholders made up an average of 35.5% of the register. One trust in the Association of Investment Companies (AIC) Flexible Investment sector had almost 60% retail shareholders, an infrastructure trust had 43% retail and the sample of private equity trusts had an average of 32%.  

These findings chime with those of WarHorse Partners and RD:IR who annually analyse a segment of the investment trust universe, but have a skew towards traditional equity trusts that make up about 73% of their sample size. This skew has led some critics to question whether the jump in retail investors may be overstated. 

The latest research, released in May, showed D2C platforms represent 34% of trust shareholders. 

Quirky flavours win out

This year there have been significant fundraisings and by 4 October there were already nine IPOs raising £2.1bn, according to AIC figures, a figure that has since increased. Once secondary fundraising is included, the number jumps to £8.7bn. 

Retail investors have been playing a role in these fundraisings with a particular taste for specific and somewhat esoteric trusts. 

Retail subscriptions through interactive investor to the HydrogenOne Capital Growth IPO stood at £9.3m, while another £3m was allocated to the Seraphim Space investment trust. These were also significant fundraises for PrimaryBid, which had an average of over £1m in demand across the two trusts and Harmony Energy Income. The figures in the table show this trend exists across the three major DIY platforms. 

Although PrimaryBid has found secondary fundraising for established trusts more popular, it is still the alternative trusts that are in favour.

“When investment trusts are already established and better known, the numbers grow significantly,” said Mike Coombes, head of external affairs at PrimaryBid. He added fundraises for Urban Logistics REIT, Aberdeen Standard Europe Logistics and LXi REIT had surpassed the maximum amount of €8m, converted to GBP. 

PrimaryBid had raised just shy of £100m in demand on investment trust deals in the 18 months to August, and seen particularly strong demand from a “core constituency” of users who understand the investment trust structure and reliably take part in these deals.

What does it all mean? 

Arthur Copple, chair of the Temple Bar investment trust, said that from a personal point of view he likes to see a shareholder register that has as much of the direct to consumer platforms on its register as possible.

Copple added if he sees a register “dominated by individuals” he is “more relaxed about buying” because there is less likely to be an “enormous sell order” one associates with institutional shareholders.

However, there are difficulties with boards.  Generally speaking, when boards say they have communicated with shareholders about a proposal or change to the trust they will have talked to the major wealth managers. 

Copple, who oversaw the change of manager for Temple Bar last year, said it is “challenging” to talk to retail investors.

He noted they have some individual clients they have contact details for and the trust is using the likes of LinkedIn and marketing materials. However, when it came to discussing what the future of Temple Bar would look like when the performance took a dip, it was the wealth managers he went to because “they were the only ones to talk to”. 

The AIC said its members are “very keen to keep channels of communication open with retail shareholders, whether that is through established means such as AGMs and annual reports, or newer developments such as online Q&A sessions with managers and directors”. 

As interest spans across all sectors of the trust market, the impact of retail investors will grow as they continue to take larger stakes in companies.