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The investment trust class of 2021 passes its first test

The investment trust class of 2021 passes its first test
June 9, 2022
The investment trust class of 2021 passes its first test

Sell-offs are painful, but they can also let a good deal of hot air out of the market. Brave, long-term investors may well argue that valuations of all manner of assets now look more palatable than they did half a year ago, from tech stocks to government bonds. It's something of a reset for those with time to ride out volatility.

That’s of little comfort to those who bought in at peak valuations last year. It’s also worth noting that buyers of 'hotter' and potentially more speculative investments may have been burned. Think crypto, special purpose acquisition companies (Spacs) and the craze for meme stocks, to name a few.

Many companies that floated on the stock market in the past year or so are also underwater for now, spelling bad news for investors keen to back the hottest new trend. But if we take a look at the investment trust space, the focus of recent launches has protected many shareholders so far.

A spate of new trusts hit the market in 2021, and most have fared well in the past six months or so. That’s largely a function of where they have focused: shipping vessel fund Taylor Maritime Investments (TMI) has enjoyed a strong run in its asset class of choice, while trusts such as Harmony Energy Income (HEIT), VH Global Sustainable Energy Opportunities (GSEO) and Atrato Onsite Energy (ROOF) play into the still buoyant demand for renewable energy plays of different types.

The digital infrastructure trusts and others such as Life Science REIT (LABS) have also put in a fairly strong showing against the backdrop of stricken equity markets. Elsewhere, the Literacy Capital (BOOK) private equity trust has delivered strong share price returns so far.

All good news so far, and some might say this reflects the fact that 2021's launches have focused on areas with true potential rather than fads. But it’s worth remembering that some trusts have still come down to earth in recent months. To cite one, shareholders in Seraphim Space (SSIT) have endured a paper loss of more than 30 per cent over six months.

This seems to show some different extremes in investor sentiment. Seraphim shares had once traded at a premium of 32 per cent to net asset value (NAV), and seemed to surge before the trust was fully invested. But the shares recently traded on a 20 per cent discount. In a slightly less extreme example, shares in HydrogenOne Capital Growth (HGEN) were once on a premium of around 25 per cent, something that has since dissipated.

Another case looks fairly idiosyncratic. Aquila Energy Efficiency (AEET) is down by around a fifth over six months, and this could relate to the fact that the trust’s initial public offering proceeds have been put to work at a slower pace than expected. This prompted two of the trust’s non-executive directors to resign earlier this year, and triggered a review of the investment strategy. The review has thrown up a handful of recommendations, including bringing forward a continuation vote on the trust, only allowing the investment team to charge a fee on committed capital and beefing-up the investment team.

The sell-off has certainly been a test of the big narratives doing the rounds last year. A few exceptions aside, last year's cohort of new investment trusts has passed so far.