“At the start of the year, we predicted that it would be a busy year for corporate action, and we have not been disappointed,” he says.
“This is unlikely to be the end of the story as there are still some ITCs with wide discounts, continuation votes, on-going arbitrage activity and the growing independence of boards means that many companies will struggle to survive in their current form."
Irwin says instead of being a threat to the sector, much of this activity is healthy for “unloved, poorly performing companies, to be weeded out especially if the money can be recycled to mandates and managers that can generate investor interest.”
Irwin says lastest figures show there is quite a bit of switching between sectors. “What we found of interest was the development of investors switching into Japan (+£93m) and out of the Far East ex Japan (-£7m). The Far East had been strongly in favour from May 2003 until February this year, but investors have taken profit in recent weeks amid growing concern over the impact of a turning point in the US interest rate cycle.
“In contrast, retail demand for Japanese funds surged in March and April, although we believe this will have weakened in May, reflecting a sharp correction in Japanese markets. Indeed, discounts of investment trusts focused on both Japan and the Far East ex Japan have widened in recent weeks.”
Over the past two years, the average ITC discount has been volatile ranging from its narrowest point, in May 2002, of 8.9% to its nadir in October 2003 of 15.5%.
The last year has seen a significant narrowing in the overall sector discount, which at the end of May this year stood at 11.8%; still a long way from its narrowest point, but above the two-year average of 12% and heading in the right direction.
Irwin says the investment trust industry “seems to be in pretty good health.”
Part of this good health is due to improved market ccnditions and the other part has been the industry’s determination to pick itself up and to move onto the ‘front foot’ following the serious tarnishing of its image in 2002 as a consequence of the split capital investment trust debacle.
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