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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.

 
Pension fund sell-off hits investment trust shares

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.

Cade highlighted Aviva (AV) as the largest shareholder in global trust Witan (WTAN ) who shares have fallen from their normal premium to NAV to a discount of 6.6%.

'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.' 

10 comments so far. Why not have your say?

mark senior

Mar 15, 2016 at 12:43

Hmmm, wonder what Aviva bought with the proceeds?

Anyone know? or was it simply topping up its cash

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Michael Beaman

Mar 15, 2016 at 15:10

You must have a short memory to think that these discounts are low.

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Denis Parkinson

Mar 15, 2016 at 16:06

Witan only moved from a discount about 18 months ago, prior to that it had been on a discount for 10 years or more. So would you call the premium

normal or the discount normal ?

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dlp6666

Mar 15, 2016 at 16:16

@Denis Parkinson

But didn't Witan substantially re-shape itself around 6 years ago ( http://citywire.co.uk/money/witan-the-welcome-revival-of-a-dinosaur-global-fund/a826435 )?

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Denis Parkinson

Mar 15, 2016 at 16:32

DLP6666

It started using individual fund managers/companies around 2004/2005, since then occasionally it changes under performing managers.

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Craig Ross

Mar 15, 2016 at 17:10

"Other sales include around £2.5 million held in shares of Dunedin Income Growth..."

Yes!!! I can still remember the conversation I could hear as my phone was placed and the call was made on the other line. "Hi, Sinclair. I've got a client who might suit you". Still, leaving aside the January meltdown I got a good price. It's an ill-wind that doesn't blow someone some good. If you're looking to buy a lot, and your dealer offers to make direct calls for larger trades, you might get an advantageous offer - they want to off-load without moving the price, and you can't buy without moving the price.

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Paul Anderson

Mar 15, 2016 at 17:12

I wonder if Aviva Managers are loading up on Oil, Miners and Banks?

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Sinic

Mar 15, 2016 at 17:23

Perhaps its those with pensions exercising their new found freedom to act financially fast and loose and withdrawing their now accessible pension funds, forcing Aviva to liquidate some holdings.

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Micawber

Mar 16, 2016 at 00:33

Thank you, Daniel - this kind of article about big money movements is always interesting and useful.

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Anonymous 1 needed this 'off the record'

Mar 21, 2016 at 08:46

Yes, more articles that get behind all the PR and dig a little deeper(as in the mag) well done . Please avoid short term stuff ie brexit speculation.

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