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Pension fund sell-off hits investment trust shares
The widening of discounts on investment trust shares might not just be down to market volatility, according to Numis.
The market volatility since the turn of the year may not be the only factor behind the widening of discounts on investment trust shares, according to analysts at Numis.
Amid 2016's turbulent markets, shares in investment trusts have fallen, often by more than the drops in the stock market, leading to their discounts to net asset value (NAV) widening.
While this is normal in choppy markets, Numis analyst Charles Cade pointed to a further potential catalyst in Aviva Investors, a big investor in investment trusts through the large pension funds it controls, which has been selling off shares.
'In part, this reflects volatile markets, although it is notable that the largest investor is Aviva Investors (formerly through a life fund managed by AXA) which holds a stake of 16% (according to Bloomberg), and this group has been selling down a number of investment trust holdings in recent weeks,' he said.
Aviva's stake in investment trusts has been bolstered by its acquisition of rival insurer Friends Life. As part of the takeover, it took on a series of 'life funds' run by the insurer. These funds are not directly available to retail investors but used by insurers to invest customers' money, often from pensions and with-profits policies.
It is among the top five shareholders on a dozen investment trusts, mostly those focused on UK and global shares, private equity and property.
Is biggest sale so far this year appears to be a dumping of its stake in Mercantile (MRC ). Last Monday Aviva sold nearly all its 10% holding in the UK mid cap investment trust, a stake worth around £167.6 million on today's £16.11 share price.
Shares in Mercantile are trading at a wider-than-average 12.8% discount, and the discount had stretched as wide as 15.9% earlier this year.
The insurer also sold off nearly all of its stake in the Invesco Income Growth (IVI ) investment trust last Thursday, raising around £5 million, although with apparently limited impact on the discount.
Other sales have been less dramatic. Aviva remains the largest shareholder in global trust Brunner (BUT ) but sold around £3 million of its stake in December, and around £4.4 million of its holding in property trust Tritax Big Box (BBOX ) last month.
Shares in Brunner fell to their widest discount in 12 months, at 18.3% around the turn of the year, but have since recovered some ground to narrow the discount to 14.9%. Aviva's sell-off meanwhile appears to have had little impact on shares in Tritax Big Box, which are trading at a 9.6% premium.
Other sales include around £2.5 million held in shares of Dunedin Income Growth (DIG ) last month. The shares are trading at a 10.6% discount, wider than its average of 7.2% over the last 12 months.
Other trusts where Aviva remains a top five shareholder include:
- London & St Lawrence (LSLI )
- BlackRock Income Strategies (BIST )
- Aberdeen UK Tracker (AUKT )
- F&C Commercial Property (FCPT )
- Electra Private Equity (ELTA )
- SVG Capital (SVI )
- Ranger Direct Lending (RDL )
- Majedie (MAJE )
- Scottish (SCIN )
It is not clear whether Aviva's sales are part of a wider move out of investment trusts, a trend that has been seen across life funds in recent years.
A spokesman for the company said: 'Positions are traded in actively managed funds by fund managers all of the time. We do not comment on any individual holdings.'
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- Witan (Ordinary Share)
- Mercantile (Ordinary Share)
- Invesco Income Growth (Ordinary Share)
- Brunner (Ordinary Share)
- Tritax Big Box (Ordinary Share)
- Dunedin Income Growth (Ordinary Share)
- London & St Lawrence (Ordinary Share)
- BlackRock Income Strategies (Ordinary Share)
- Aberdeen UK Tracker (Ordinary Share)
- F&C Commercial Property (Ordinary Share)
- Electra Private Equity (Ordinary Share)
- SVG Capital (Ordinary Share)
- Ranger Direct Lending Fund (Ordinary Share)
- Majedie Investments (Ordinary Share)
- Scottish Investment Trust (Ordinary Share)
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by David Kempton on May 24, 2016 at 17:15