Investment trusts outpace stockmarket revival

After the choppy waters of 2011, markets picked up and performed relatively well in the first quarter of 2012 – by the end of March the FTSE All Share was up 6 per cent. Pleasingly for investment company pundits, the closed-ended industry managed to perform better still and was up an average of 8.6 per cent.

One sector to have shrugged off the volatility of the past 12 months was Specialist Sector: Biotechnology and Healthcare, which was the top-performing sector over the year to the end of March, up 23 per cent.

As a result it is currently trading at a discount of 6.4 per cent, slightly narrower than the investment company average of 8.9 per cent (as at the end of February), and down from 10 per cent a year ago.

Looking at the first quarter alone, the company that has yielded the best results was another niche one: Baker Steel Resources from Specialist Sector: Commodities and Natural Resources, turning a £100 initial investment into £149 over the three months to 31 March.

Investing mainly in mining and precious metals, the company's objective is to hold companies "with a view to exploiting value inherent in market inefficiencies and pricing anomalies". Concentrating on such a narrow time frame is clearly ill-advised for most investors, but it is interesting nonetheless.

There has been continued focus on specialist sectors and the three launches that have made it to the stock exchange so far this year have conformed to this trend. The new companies listed were Bluecrest BlueTrend in the Hedge Fund sector, which raised £165m, and Alcentra European Floating Rate Income, which raised £81m in Specialist Sector: Debt.

Better Capital 2012 also raised an impressive £166m for investing in the Private Equity sphere. Oriel’s analysts noted that this sector as a whole has impressed of late, saying: "Private Equity trusts (excluding 3i) have performed strongly with the average discount narrowing from 36.8 per cent to 27.3 per cent as earnings in private equity-backed portfolio companies held up relatively well."

There have been a number of successful C-share issues as well this year, with HICL Infrastructure exceeding its maximum funding target of £250m and reinforcing the current demand from investors for attractive and steady income streams.

Aberdeen Latin American Income also raised £16m via a C-share issue. Confirming that the current income bias is likely to continue, Henderson Diversified Income and International Public Partnerships have also announced their intention to issue C-shares in 2012.

In terms of corporate activity, several companies have changed their names – either as a result of a changed mandate, new management or simply to better reflect their investment activities.

Henderson TR Pacific changed its name to Henderson Asian Growth, and Invista Foundation Property became Schroder Real Estate, while Invesco Perpetual Select Hedge fund has changed its policy and is now Invesco Perpetual Select Balanced Risk.

The altered mandate also means a change of sector for the fund, from Hedge Funds to Global Growth, as it goes from a fund-of-hedge-funds approach to investing in a diversified portfolio of highly liquid assets.

The stability of the closed-ended structure has contributed to the growth of specialist sectors because managers do not have to sell perhaps illiquid stock to meet redemptions. With the implementation of RDR nudging closer, the sector offers a unique proposition, which will hopefully come to be appreciated.

Annabel Brodie-Smith is head of communications at the Association of Investment Companies. The views expressed here are her own.