For the investment trust sector, 2021 has been a bumper year.
“2021 has broken several fundraising records,” said Nick Britton, head of intermediary communications at the Association of Investment Companies (AIC).
“We’ve seen the most fundraising ever, more than £13 billion, compared with a previous record of just over £10 billion in 2014. The year has also seen the largest ever amount raised by existing investment companies – so-called secondary fundraising – at more than £10 billion.
“The ability of investment companies to raise more money in response to investor demand is helpful for liquidity in the market and for larger wealth managers who want to add some of these attractive opportunities to their clients’ portfolios.”
Let’s look at some of the key trends driving ever-growing demand for investment trust shares.

Alternative assets
Two of the three sectors raising the most money overall during 2021 did not exist ten years ago – namely, renewable energy infrastructure and growth capital (the third being infrastructure).
“It’s a good example of how investment companies have been able to innovate and offer investors access to alternative asset classes providing income or growth,” said Britton.
“These assets are often hard to buy, sell and value, meaning that closed-ended investment companies are better suited to holding them than daily-dealing open-ended structures.”
The wider breadth of opportunities to invest in alternatives through investment companies continues one of the biggest trends the industry has seen in recent years. In the past five years alone, 40 alternative investment companies have launched out of a total of 65 initial product offerings (IPOs), according to research company QuotedData.
Demand was such that some trusts undertook several fundraisings during 2021. As an example, Digital 9 Infrastructure raising £300 million when it launched in March to invest in digital assets like data centres and subsea fibre-optic networks. It went on to raise another £175 million in May and £275 million in September.
“Interestingly, many of these trusts are also trading at healthy premiums to their net asset values, given the relatively high yields they are paying, which are typically inflation proofed,” said Chris Bell, a portfolio manager at Ravenscroft.

Reliable income
This takes us onto another trend – the popularity of investment trusts offering a reliable stream of income in a low interest-rate environment where cash savings are losing value in real terms and bond markets are arguably expensive.
The infrastructure and renewable energy sectors fall into this category, as does specialist property, such as warehouses, which also attracted a sizeable chunk of new money invested in 2021.
Equity income trusts remain popular too, thanks largely to the unique income benefits of the investment company structure. They can hold back up to 15% of the revenue they generate in leaner years to distribute as dividends to investors during tougher period, as has been the case during the pandemic. Some also take advantage of the option to pay income out of capital profits.
Indeed, 85% of equity investment trusts paying a yield of more than 1% maintained or increased their dividends during 2020’s dividend drought in comparison to just 23% of open-ended funds, an analysis by the AIC shows.

Impact investing
Fundraising not only reflects investor demand for alternative assets and income but continues a long and proud tradition of investment companies being at the vanguard of social and economic development.
Many new launches reflect demand for investments that have a positive environmental impact. Flotations in the renewable energy infrastructure space included VH Global Sustainable Energy Opportunities in February, Aquila Energy Efficiency in June, and Atrato Onsite Energy and Harmony Energy Income in November. Many of them were significantly oversubscribed.
“This is hardly surprising considering the fast-growing awareness around and popularity of ESG [environmental, social and governance] investing, on top of a stronger onus on being environmentally-friendly and doing our bit to tackle climate change in our normal day-to-day lives,” said Jayna Rana, an investment company analyst at QuotedData.
Other new launches serve to meet demand for investment in exciting, early-stage technologies, often with a green bias, which simply cannot be made through open-ended funds.
“Witness, for example, the IPOs of HydrogenOne Capital Growth and Seraphim Space,” said David Liddell, a director of IpsoFacto Investor.
“Such launches reflect a return to the roots of investments trusts, which had their origins in providing funding for the more progressive investments of the 19th Century, such as South American railways.”

Move to scale
According to Bell, the announcement in October that the Scottish Investment Trust had decided, after a strategic review, to combine with JPMorgan Global Growth & Income was “more evidence of the move to scale in the sector”.
The newly enlarged vehicle will have more than £1.2 billion of assets. “Going forwards we expect more mergers, as the ‘big is better’ mantra becomes more widespread,” he said.