LONDON: The Truth Behind Investment Trust Liquidity

Jun 20, 2012

LONDON 20 June 2012: J.P. Morgan Asset Management, the largest manager of investment trusts in the UK, has launched the fourth paper from its Investment Trusts, Insight Series, specifically for financial advisers. This fourth paper confronts allegations of a lack of liquidity within investment trusts, arguing that this can often be a red herring when it comes to rising demand from investors.

James Saunders Watson, Head of Marketing, Investment Trusts for J.P. Morgan Asset Management said, “The issue of liquidity is often raised when referring to investment trusts; however to a large extent the concerns raised by advisers are overstated. There are sophisticated mechanisms in place to ensure that liquidity can be controlled and liquidity is specific to each trust. An investment trust’s board can take action to boost liquidity by issuing new shares, and can also repurchase shares if the demand drops. This action is at the board’s discretion and can be suspended if market conditions are volatile, a benefit not available to an open-ended fund.”

Understanding liquidity control mechanisms in Investment Trusts:

  • Conversion share (or C-share) issue – conversion shares allow new shares to be issued while protecting existing shareholders from dilution. The C-share portfolio trades separately for a specified period before being merged with the main trust. C-shares are then exchanged for a proportional number of ordinary shares depending on the NAV of the two portfolios.
  • Share buyback – investment trusts can buy back a proportion of their existing shares, helping them to narrow discounts by reducing the number of shares available in the market.
  • Tap issue – investment trusts can issue new shares at a premium to the net asset value (NAV) to meet demand.
  • Tender offer – an incentive offer to shareholders to buy back shares, usually at a narrower discount than the prevailing price.
  • Treasury shares – shares that have been repurchased can be held in treasury with the potential to reissue them at a future date.

David Barron, Head of Investment Trusts at J.P. Morgan Asset Management said, “While the uptake among IFAs remains relatively low, private client wealth managers have been long-term supporters of investment trusts. These intermediaries are comfortable holding large positions in investment trusts on behalf of their clients, both in monetary terms and as a proportion of the overall fund.

“Liquidity does not appear to be a problem for these investors. The long time horizon of most investors means that they can comfortably place instructions to buy and sell shares over several trading days if needed. And if wealth managers can do it, why not IFAs too?”

The fourth paper in the Investment Trusts, Insight Series can be found here

The final paper in the series will look at accessibility and how to invest in investment trusts.

– Ends –

For further information please contact:
Sarah Godfrey: Media Relations Telephone: 020 7742 5950

Lansons Communications
Pippa Gibb Telephone: 020 7294 3690

Notes to Editors

About J.P. Morgan Asset Management

J.P. Morgan Asset Management is part of JPMorgan Chase & Co. and is a global asset management leader providing world-class investment solutions to clients. With US$1.4 trillion in assets under management (the Asset Management client funds of JP Morgan Chase & Co. as at 31 March 2012) and offices in 41 locations around the world, J.P. Morgan Asset Management offers global coverage with a strong local market presence, and leadership positions in most asset classes.

J.P. Morgan Asset Management is a trading name of J.P. Morgan Asset Management Marketing Limited which has issued this material in the United Kingdom and which is authorised and regulated by the Financial Services Authority. Registered in England No. 288553. Registered office: 125 London Wall, London EC2Y 5AJ.

Any past performance referred to in this material is not a guide to future performance and the value of investments, and any income from them, can fall as well as rise. Any tax concessions referred to are not guaranteed and their value will depend on the individual circumstances of investors. Stock market linked investments carry a number of inherent risks. These risks will increase where fluctuations in exchange rates impact on the value of any underlying investments or where the investment is exposed to smaller companies or emerging markets. Investments in fixed income securities that are not rated as investment grade represent a greater risk to an investor’s capital.


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