Trustnet Magazine 61 April 2020 | Page 38

In focus [ TRUST ] 38 / 39 This niche trust makes its money from music royalties, meaning it can play an important role in terms of portfolio diversification TRUSTNET “Once the income stream from a song dries up, it’s hard to see it holding its capital value,” he added. The trust is currently the only member of the IT Royalties sector. It is up 5.26 per cent since launch, which takes into account this year’s market collapse – while its underlying assets are unlikely to be affected by the coronavirus- related economic shutdown, it is not immune to investor sentiment. FACT BOX Manager: Merck Mercuriadis / Launched: 11/07/2018 / Discount/Premium: -1.02% / OCF: 1.53% CROWN RATING N/A PERFORMANCE OF TRUST SINCE LAUNCH Hipgnosis Songs ( 5.26% ) 15% 10% 5% 0% -5% -10% De -15% Each song is treated as a separate asset, with Mercuriadis looking for one of four characteristics when considering potential additions to the portfolio: first, the song has proved to be a “hit” with a track record of success; second, it is culturally influential, meaning that it is likely to be played consistently or even covered by a different artist; third, it is under-exploited meaning that it has the potential to be synched or covered more; and fourth, it offers an improving royalty income via negotiation of competitive fees. Jim Harrison, director of advisory firm Master Adviser, said that while this is obviously a niche trust, it can play an important role in terms of diversification and encouraging first- time investors. “It feels zeitgeisty and may appeal to younger investors with a long I f someone can manage Beyoncé, Elton John, Mary J Blige and Guns N’ Roses, would you trust them to manage your money, too? Merck Mercuriadis, previously an executive music manager, founded The Family (Music) Limited and launched the alternative investment strategy Hipgnosis Songs in 2018. The £657.8m trust is made up of songs and the associated intellectual property rights, receiving three streams of royalties as its income: a mechanical royalty when a song is downloaded online or onto a physical CD; a performance royalty when the song is performed live, broadcasted or streamed; and finally a synchronisation fee, which applies when the song is used on television or in a video game. Hipgnosis Songs horizon and a taste for something other than vanilla,” he explained. “Like an infrastructure fund, it is mainly a capitalisation of cash flows, although the catalogues and individual songs can be sold on.” However, he warned this isn’t without risks as the music industry has always been vulnerable to people distributing songs for free, while “today’s chart-topper can quickly fade”. Source: FE Analytics trustnet.com