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Trust Insider: an under-the-radar Invesco trust arbitrage

by James Carthew on May 20, 2014 at 00:01

Finally, the cash proxy, IVPM, managed by Stuart Edwards, invests mostly in money market funds authorised as Ucits schemes and is designed to be as safe as Invesco can make it. Given where interest rates are at the moment, Edwards has been hard pressed to generate much of a return in recent years.

Four times a year, at the start of February, May, August and November, shareholders can switch between the different classes.

The switch is not classified as a disposal for CGT purposes, though bear in mind HM Revenue & Customs can always change its mind, and the conversion ratio is calculated based on net asset values.

That latter point means there is a natural arbitrage between the different share classes. The discount on each class must be kept within a fairly narrow range so the board ensures the options available to shareholders remain relevant, and has changed the remits of two of the classes in the past.

At the tactical level, the board uses share buybacks into Treasury to try to keep the discount on each class as close to zero as is practical. In practice, this has meant the fund has shrunk a little but the board is keen to see it grow again.

Individually, the different classes may appeal to some investors but the strength of this fund is in its structure. In theory, if there is demand, the board can introduce other share classes and this flexibility ought to maintain its appeal. I think it is under the radar for many investors, however.

James Carthew is a director at Marten & Co

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