Investment Trust Fundraising in Europe Persists Amid Volatility
August 26, 2020 — London
Launches dwindle but innovation continues, along with dividend payments
European investors’ demand for investment trusts has continued during the coronavirus pandemic and trading volumes have remained fairly consistent, according to the latest issue of The Cerulli Edge―European Monthly Product Trends.
Cerulli Associates, a global research and consultancy firm, notes that demand for income-yielding trusts has been especially strong. As companies have slashed dividends in recent months in response to the financial impact of COVID-19, open-end income-paying funds have been faced with a dearth of dividends to rely on. However, the structure of investment trusts is such that managers can hold some income in reserve in order to continue making payments or even increase dividends during periods when income is difficult to generate. Unlike many open-end funds, investment trusts can also use profits to pay out dividends.
Fabrizio Zumbo, associate director, European asset management research at Cerulli, says that U.K. equity income and global equity income trusts have been gaining attention among investors seeking alternative sources of income in the current market.
Although only one investment trust was launched during the first half of 2020, according to the Association of Investment Companies (AIC), innovation has continued, with a focus on corporate activity such as mergers, acquisitions, and changes to management contracts and strategies. AIC data shows that between January and June 2020, six investment trusts changed managers, continuing a trend that started in 2019.
Fundraising has continued this year, in spite of COVID-19 and related volatility. Figures from the AIC show that investment trusts have raised more than £3 billion (US$3.9 billion) so far in 2020. Of the five sectors that raised the most, four are income-generating alternative sectors, with the infrastructure and renewable energy infrastructure sectors raising £437.1 million and £376.1 million respectively from Jan. 1 to July 24. The AIC investment company sector that raised the most during the period, though, was property—U.K. commercial, which attracted £443.0 million from the start of the year to July 24.
- European investors confidently added to their fund positions in June—it was the first month this year that net new flows into long-term funds exceeded €50 billion (US$59 billion). Investors seem to be pinning their hopes on a combination of the historic amounts of stimulus provided by governments worldwide and a return to business activity. The top 10 actively managed funds by net flows were all money market products, driven by investor caution as well as businesses shifting their capital, potentially readying to deploy elsewhere as a sense of normality resumes.
- June marked the third consecutive month of positive sales for Europe's passively managed assets, following the March sell-off. In the second quarter, passively managed assets gathered net inflows of €42.5 billion. Exchange-traded funds (ETFs) in Europe garnered €13.1 billion in net sales in June, an increase of 67.5% month-on-month. Bond ETFs accounted for €7.8 billion of the net inflows, followed by equity ETFs, which attracted €4.5 billion during the month. Mixed-asset ETFs was the only asset class to register negative net sales during the month, losing €19 million in redemptions. Index-tracking funds registered net inflows of €2.6 billion in June, an increase of 19.2% on the previous month.