UnaVida |Investment Trust Realisations

Investment Trust Realisations

To realise or sell assets is a normal process for many invest funds, with investment trusts however this can present opportunities to investors to make above average gains on investing in an investment trust, that is going through a “realisation” process.

I am sure that I have told you have many times, that I LOVE investment trusts, and realisations is one of the reasons why my love will never fade. Let me explain – investment trusts are different to normal investments. If you invest in a unit trust, you are unable to influence what happens to the unit trust – when you invest in an investment trust you are a shareholder and therefore often entitled to vote at general or extraordinary meetings.

Now many investment trusts are closed funds, so they run for a finite term, shortly before the termination date, the investment trust board will ask for a continuation vote. If the majority of shareholders vote against, then the investment trust will need to put a realisation process into being.

Another reason the board may request a vote is that the investment trust may have reduced in size over the years and therefore not be cost effective to manage.

Whatever the reason, investors need to look closely at the current Net asset value of the investment trust and at the prevailing price of the trust, to calculate the discount to Net asset value, before deciding how to vote.

Quite clearly if there is a wide disparity between the value of the assets in an investment trust and the current price, then investors would be inclined to put forward a vote that will result in the Asset Realisation Process.

Now investment trusts being investment trusts, the disparity in values is not always crystal clear, quite often investment trusts have investments included in their accounts at the price they paid for them. This is where I rely upon my research sources for investment trusts, to get an understanding of whether our clients can get an advantage from a Realisation.

There is also a Risk element to the Realisation process as asset prices now may not be the same at the time the assets are sold. Also Realisation processes have different time scales dependent on the assets or nature of the investment trust.

We have recommended several investment trust Realisations to our private clients, if you are a private client of ours then you may have a slight concern that you are acting upon Insider Information. If that is a concern, then let me reassure you that all information on investment trust realisations is in the public domain.

It is simply that many advisers either do not understand investment trusts or are too lazy to do the research.

One of the frequent phrases I use is – wake up and smell the coffee!

Included in our investment trust realisations is an investment trust at an estimated 40% discount to net asset value (being realised in 2017).

Another is at a discount of 35% and is being realised over a three year period (but our research sources feel that the asset values are likely to improve).

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