New investment trust tax rules that came into effect this year have added more strings to the investment trust sector's bow, particularly for income seekers, according to the Association of Investment Companies (AIC).
From this month, investment trusts have the freedom to distribute income from capital profits. This, explains Ian Sayers, director-general of the AIC, is good news for companies who do not have much in the way of revenue reserves but do want to reward investors with a higher dividend yield.
The first investment trust to explicitly state its intention to use the new tax rules to pay out a dividend using capital is F&C Private Equity. "Not only does this result in an implied yield of 6.6 per cent, it shows confidence on the outlook for cash flow," Cazenove commented on the announcement.
Mr Sayers says that, while paying income out of capital profits won't be for everyone, anecdotal feedback from investment trust boards suggests that a number look set to embrace the new tax rules, particularly those that do not have sufficient revenue reserves to pay a higher income to investors.
"With inflation showing little sign of retreating, interest rates still at record lows and income in demand like never before, these new tax rules may well find favour with investors," he adds.
Fund launches soar
Despite challenging and volatile market conditions, fund launches soared in the last quarter of 2011, according to the latest figures from Thames River Multi Capital's FundWatch survey.
According to FundWatch, a quarterly analysis of the retail funds landscape, 32 funds were launched in the fourth quarter of 2011, compared with nine launched in the previous quarter.
Gary Potter, co-head of the Thames River Multi-Capital team, commented: "UK investors are spoilt for choice when it comes to investment products, with over 2,000 to choose from, so the increase in the number of funds launched is of some concern – particularly when you consider the challenging market conditions investors are faced with. Less is sometimes more and over time we expect to see a period of consolidation of funds, with underperforming or small funds being closed or merged."
Investors Chronicle is not an advocate of new fund launches, unless they have a fund manager with significant (and relevant) prior investment success. We prefer to profile and tip funds that have at least a three- to five-year track record, which helps to illustrate whether a fund manager can deliver both in bull and bear markets.
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