Investment trust liquidity is good, argues Winterflood

Some 65 per cent of investment trusts (189) have market capitalisations larger than £100m - often the minimum size required by private client brokers and wealth managers for trusts they will consider for clients. And nearly 40 per cent of investment trusts have market capitalisations of over £250m. This has been boosted by considerable growth in market capitalisations over the last 12 months, driven by strong market conditions, new share issuance and tighter discounts.

However, an investment trust's size makes a difference to bid-offer spreads (the difference between the buying and selling price). Over the year to 31 August, the top 25 per cent of funds in terms of market capitalisation traded on a median spread (the difference between the two prices) of 0.4 per cent, while the smallest 25 per cent traded on a median spread of 2.6 per cent.

Average daily trading volumes are also significantly greater for larger funds. Over the year to 31 August, 30 funds had average daily traded volumes of more than £1m, including 3i Group (III), Alliance Trust (ATST), and IC Top 100 Funds HICL Infrastructure (HICL), Templeton Emerging Markets (TEM), and BlackRock World Mining (BRWM).

A further 36 funds had average daily volumes of more than £0.5m, including Electra Private Equity (ELTA), and IC Top 100 Funds Personal Assets (PNL) and JPMorgan Global Emerging Markets Income (JEMI).

There are 18 funds with average daily volumes of less than £10,000. But Winterflood adds: "While there is always likely to be a tail of funds in which secondary market liquidity is poor, our analysis suggests that the majority of investment trusts offer reasonable liquidity and at the larger end of the market, we would argue that liquidity is good."

Investment trusts by market capitalisation

Source: Winterflood, Thomson Reuters & Bloomberg as at 31 August 2013