How the 16 investment trust IPOs of 2021 have fared since listing

Faith Glasgow looks at how new investment trusts have fared since making their stock market debut last year.

Last year was a pretty good year for investment trust IPOs. Data from the Association of Investment Companies (AIC) shows there were 16 new launches in total, contributing £3.8 billion to a record £15.1 billion of fundraising in the closed-ended sector. In contrast, we’re still awaiting the first investment trust IPO of 2022, although three trusts have this month announced they are fundraising in an attempt to list.

• Find out about: Free regular investing | Interactive investor Offers | ii Super 60 Investments

The table below shows that in 2021 the IPO focus was very much on specialist funding for a new tranche of innovative enterprises, from digital infrastructure and renewable energy to space initiatives.

As Annabel Brodie-Smith, communications director at the AIC, explains: “Investment companies are particularly suitable for these hard-to-sell assets, providing permanent capital with the ability to trade your shares whenever the stock exchange is open."

But the table also shows wide disparities in share price performance over their first roller-coaster year plus (data to 20 September), as growth companies have been sold off, war has come to Europe, and inflation – especially the price of energy – has soared.

Indeed, Ewan Lovett-Turner, head of investment company research at Numis, cautions: “Be slightly wary of conclusions on just the point-to-point numbers, because some of the strong performers have also been weak in recent months – coming off very large premiums in some cases.”

He adds a further point: “There are quite a few slightly weird IPOs in this list, often not raising a lot of external capital at launch, which means that traditional investment company holders might not have significant exposure to them.”

• Top 10 most-popular investment trusts: August 2022
• Investors flee equities to profit from the ‘bear market rally’
• Where markets go next as the summer rally stalls

The most eye-catching example is Literacy Capital (LSE:BOOK), a family-run private equity trust where the shares remain closely held. It gives 0.9% of net assets to literacy charities each year and has achieved a rip-roaring 122% share price uplift since IPO through a strong seed portfolio. It listed on the stock market at that point, but did not raise any share capital.

The poorest performers on the list are the two growth capital trusts. In both cases, the share price has fallen by getting on for 40% and the discount has widened to a similar level. As Andrew McHattie, publisher of the Investment Trust Newsletter, reminds us: “There was still heavy demand for growth capital trusts in 2021, before the outlook for inflation and interest rates changed so dramatically.”

He sees some opportunity for brave investors here: “Seraphim Space Investment Trust (LSE:SSIT) offers something truly unique, investing in early stage space technology businesses, and started well in early trading before the global sell-off in growth companies dragged the shares down to a wide discount to net asset value (NAV) in spite of solid operational performances in the underlying portfolio. 

“This near-term volatility could present patient investors with a good opportunity to buy into powerful multi-decade potential.” 

McHattie also points out that Petershill Partners (LSE:PHLL) has also dropped to a wide discount, which “probably says more about the broader market conditions than about its own merits”.

• ‘Fallen below our expectations’: Fundsmith emerging markets trust to close
• 11 investment trusts aiming to take advantage of stock market falls

The third most disappointing performer is Castelnau Group (LSE:CGL), another oddity, which has the brief of modernising a highly concentrated portfolio of old-fashioned non-essential consumer businesses, including train seller Hornby (LSE:HRN), stamp dealer Stanley Gibbons and funerals group Dignity (LSE:DTY).

Says McHattie: “Despite sitting in the Flexible Investment sector, it does not seek to hedge or take short positions, or to seek safety in assets like gold or index-linked gilts, so its performance is not so surprising.” It’s a classic example of the importance of understanding a fund’s investment policy rather than assuming it is similar to other trusts in the same sector.

The list also includes no less than six renewable energy infrastructure trusts. Established trusts in this sector have been highly profitable in recent months, piggybacking on high inflation and the soaring cost of oil and gas. But McHattie says it is tricky for investors to assess newcomers: “The managers are previously unknown and the range of investment strategies and geographies is quite wide.”

It’s also difficult for such trusts to hit the ground running. “It takes some time to deploy and execute strategies, so it makes more sense to assess the success of these new trusts over longer time periods,” says Lovett-Turner.

Certainly, market performance has varied considerably, partly due to a few specific factors that have impacted particular investment trusts. The most disappointing outlier is Aquila Energy Efficiency Trust (LSE:AEET), which raised less than hoped for at IPO and has since suffered from “deployment issues and board departures”, according to Lovett-Turner.

Conversely, explains McHattie, Harmony Energy Income Trust (LSE:HEIT), a battery storage trust, managed to hit the ground running. “It posted a string of NAV rises as it raised revenue assumptions and renegotiated contracts.”

How the 16 investment trust IPOs of 2021 have fared so far 

All figures sourced at end of market close on 20 September 2022. Past performance is not a guide to future performance.