Trustnet Magazine Issue 43 September 2018 | Page 6

FE TRUSTNET
PERFORMANCE OF TRUSTS VS SECTOR OVER 10YRS
Standard Life UK Smaller Companies Trust (433.41%)
Dunedin Smaller Companies Investment Trust (298.84%)
IT UK Smaller Companies (283.17%)
500%
400%
300%
200%
100%
0%
Se
-100%
0
for 150 years and have evolved
to meet shareholders’ needs and
deliver strong long-term returns.
Open-ended funds do not have
independent boards and often
investors’ money languishes in a
poorly performing, lacklustre fund
without any option for change.”
So how often do investment trusts
go out of business and what happens
when they do? According to the AIC,
52 investment companies have come
to the end of their life in the last five
years, which is about 10 a year.
The first step in the process of
closing down a trust is taken by
the board if the directors believe
shareholders no longer want to
continue investing. In this case,
they can recommend it is liquidated
or wound up, before putting this
proposal to shareholders to vote on.
If they agree with the proposal,
Brodie-Smith says the board may
simply decide it is best to sell all of
the investments and return the cash
to shareholders.
Alternatively, it may allow them
to invest in another fund, which
may be a closed-ended one with
a similar investment objective or
an open-ended one that holds the
same type of assets. This process is
It will take longer to wind
up an investment company
that holds property or other
physical assets. However, the
process is not always brisk
for equity trusts either
being unwound. Yet in an
odd quirk of fate, the £14m
of assets left in the trust
returned an impressive 40.49
per cent to those remaining
shareholders in the second
quarter of 2018, making it the
fourth best-performer in the
closed-ended universe over
that time.
which led the trust to trade on
a wide discount, shareholders
voted to wind up the trust in
March 2013 and the objective
was changed to an orderly
realisation of assets so
cash could be returned to
investors.
Some five years later,
however, and the trust is still
ASHMORE GLOBAL OPPORTUNITIES
M&A
In addition to recommending
closures or switches into other funds,
directors may propose merging two
trusts so one no longer exists.
The most recent example of this
took place in June last year when the
board of Dunedin Smaller Companies
proposed a merger with Standard Life
UK Smaller Companies. This followed
a strategic review by Dunedin’s
board, which was concerned about its
wide discount to NAV, believing that
often referred to as “rolling over”
the investments. One advantage
of taking this route is that the
shareholders will not incur capital
gains tax on any profits they have
made, which may be the case if they
take cash instead.
How long the wind-up process will
take depends on the type of assets
the trust invests in. For example,
Brodie-Smith says it will take longer
to wind up an investment company
that holds property or other physical
assets. However, the process is not
always brisk for equity trusts either.
Case Study
Launched in December
2007, Ashmore Global
Opportunities quickly
racked up assets of close
to £365m from investors
attracted by a focus
on special situations in
emerging markets.
However, after a continued
period of share price falls
[ CLOSING TRUSTS ]
4 / 5
Cover story
Source: FE Analytics
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