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Time to turn bearish on alternative income trusts?
by Sarah Miloudi on Sep 19, 2013 at 07:00
The success of the alternative income sector has been powering the investment companies universe, with a host of new launches and cash calls pulling in a whopping £2.6 billion this year alone.
But premiums are getting high, returns are narrowing and some of the biggest IPOs from last year have been slow to get invested.
Interest rates are also only ever going to move in one direction from the current historic low, but despite this, more new launches are continuing to come to the market.
Threadneedle is the latest investment house hoping to clinch a share of the demand for yield, with Henry Cooke, head of its European asset backed desk, expected to take charge of Threadneedle’s impending Asset Backed Income launch, which is looking to raise £250 million.
It follows hot on the heels of a £150 million launch by specialist bonds boutique TwentyFour Income .
Similar to Threadneedle’s proposals, TwentyFour’s investment trust is focused on the European asset backed securities market, which is thought to have assets in the region of €8 trillion (£6.7 trillion) globally.
Time to turn bearish?
Thumbing through the prospectuses of alternative income funds, it is easy to see why investors are being drawn in, with base rate at a meagre 0.5%, while in the closed-end trust sector, total annual returns of upwards of 6% are up for grabs.
However, as noted by alternatives house Dexion Capital, while issuance activity has been strong year-to-date, the steady flow of capital has not been matched by robust returns.
‘Funds with exposure to structured European credit have performed strongly, most notably Volta (its net asset value was up 11.6% in H1) and Real Estate Credit Investments (up 10.1%),’ Dexion’s team said.
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