Investments trusts are a super way for investors to get long-term exposure to stock markets – and make some money along the way. They’re easy to buy and sell, and most provide value for money.
Yet they are not without flaws, as predators such as American hedge fund manager Saba Capital have sought to exploit.
The biggest one is that as funds listed on the London Stock Exchange, their share prices do not always reflect their underlying asset value. In most cases, they undervalue them.
In investment speak, they trade at a discount. When this happens, shareholders see the worth of their investments eroded.
It’s frustrating. The average discount industrywide is currently about 15 per cent.
Trust shares trade at discounts for many reasons: out of vogue investment mandates; an unappealing stock market (as London has been for quite a while); and an unfriendly economic and financial backdrop.
Cashing in: Investments trusts are a super way for investors to get long-term exposure to stock markets – and make some money along the way
Yet underpinning all these reasons is a mismatch between buyers and sellers. More investors want out than in.
Saba has sought to make money from this by buying stakes in undervalued investment trusts and then agitating for change. So far it hasn’t managed to take any trusts under its wing, but it has helped close discounts on some trusts, making money in the process.
A few days ago I spoke to Richard Curling, chairman of trust Montanaro European Smaller Companies (MESC), about discounts. The £277million trust has Saba among its shareholders.
Curling says investment trusts must do more to reduce the ‘volatility’ in share price discounts. At MESC, he has implemented a three-prong strategy designed to drive down the trust’s discount.
It has involved buying back shares (in effect reducing their supply to make them scarcer); allowing investors twice a year to exit the trust at close to asset value; and reducing the annual charge from 0.9 to 0.825 per cent.
Although early days, it’s working. The trust’s discount is now 8 per cent, more than half what it was in November last year (Saba has taken advantage of this to trim its stake). And unlike many other trust chairs, Curling has a bit of get up and go about him.
Curling believes the investment trust industry needs to do far more to attract investors – young and old – something which would help drive down discounts. His ideas include the use of social media to get younger people interested in investing, and the removal of jargon from key literature such as annual reports.
He adds: ‘We must present our case better to potential investors. Plain English, not jargon.’
Curling is bang on the nail. Although stellar investment performance will always be the number one priority for investors (MESC’s share price is up 17 per cent over the past year), investment trusts must become more relevant to today’s investors.
Otherwise there is a danger many will be undermined by discounts.
On a related issue, the industry’s flag waver, the Association of Investment Companies (AIC), is calling for a change in UK company law that would ensure more trust shareholders vote on key issues, such as a trust’s discontinuation or takeover. Currently, many shareholders are thwarted from voting because the platform they hold their investments with don’t pass on details.
The AIC has launched a petition on this issue. It needs 10,000 signatures for the Government to respond.
As a fan of trusts and investor empowerment, I’ve put my name to it, as have 1,798 other people.
Are there 8,202 lovers of investment trusts out there who will get the petition to the next step? I do hope so.
On the move: This month, Jeff is doing two Race For Life runs
Leave Gift Aid alone, Rachel
Gift Aid is a financial lifeline to many charities left battered and bruised by Chancellor Rachel Reeves’s recent hike in employer National Insurance costs.
It boosts the coffers of 66,000 charities by £1.6billion a year.
This month, I am doing two Race For Life runs for fabulous charity Cancer Research UK – a 5km event in London’s Battersea Park, followed by a 10km run in glorious Worthing, West Sussex (I have a thing about piers).
So far, Gift Aid, a 25 per cent top-up on donations, has increased my fundraising by more than £180.
So, Rachel, I know you’ve made a pig’s ear of the country’s finances, but please leave Gift Aid alone come the Autumn Budget.
You’ve hit charities once in the pocket. Twice would be cruel beyond cruel. Rachel de Vil.
Watch out for your bank sneakily dropping chip and pin payments
Like many readers, retired teacher Moira McCormick isn’t a fan of new banking technology. She prefers cards that require a personal identification number (PIN) to contactless.
‘It provides me with a layer of financial protection,’ she says.
But recently she used her card to pay for parking at her local Banbury railway station, only for the payment to be completed without requiring a PIN.
Worried that anyone could use her card to pay for parking if she were to lose it, she contacted Chiltern Railways (operator of the car park) for an explanation.
She was told that Mastercard and Visa have informed the company which provides the payment service for Chiltern’s ticket machines that ‘insecure unencrypted PIN validation’ was no longer permitted.
She was told to contact her card issuer (HSBC) for a replacement that asks for PIN verification.
Chiltern informed her that some cardholders with Lloyds and Royal Bank of Scotland (NatWest) were also affected.
‘I was told the change is meant to improve the security of my card,’ says Moira, ‘but it’s now less secure. Anyone could use it if I lost it.’
Indeed, when sales director Bradford Bines, from Leigh-on-Sea in Essex, lost a card in a Manchester car park, he later discovered it was fraudulently used 29 times by exiting drivers.
HSBC insisted that changes to the technology were designed to make cards ‘more secure from criminals trying to steal data’.
Moira’s non-PIN payment, it said, was deemed to be ‘low value and low risk’, adding: ‘A decision was made to approve this payment without a PIN for the convenience of the customer.’
Moira isn’t happy. She says HSBC should have informed her that some payments would no longer require a PIN. Fair point.
This article was originally published by a www.dailymail.co.uk . Read the Original article here. .
