Investment trust consolidation continues with two more mergers / Image source: Adobe
  • Two China trusts to merge
  • Two Troy trusts also to merge
  • Focus on costs and liquidity

With investment trust shares in the doldrums and discounts to NAV (net asset value) at their widest level for some time, we have been predicting a wave of mergers among sub-scale funds.

Expect 2024 to see more mergers of sub-scale investment trusts

Today we had further confirmation that consolidation is the way forward with the news Abrdn China Investment Company (ACIC) would be absorbed into the much larger Fidelity China Special Situations (FCSS) and Troy Asset Management will merge STS (STS) into Troy Income and Growth (TIGT).

ACCEPTING THE INEVITABLE

Scottish-based asset manager Abrdn (ABDN) has been steadily merging its sub-scale investment trusts into one another as it looks to streamline its retail offering.

Two years ago, the firm merged its Emerging Markets and New Thai funds to form a new trust, the Aberdeen China Investment Company, which currently has a market cap of just under £200 million.

Today, however, Aberdeen China has announced that after ‘a very thorough review process’, including consultation with major shareholders, it has given up the fight and will combine with the £1 billion market cap Fidelity China Special Situations trust.

Assuming each firm’s shareholders approve, Aberdeen China will be placed into voluntary liquidation and ‘part of its cash, assets and undertaking will be transferred to Fidelity China in exchange for the issue of new ordinary shares in Fidelity China’.

There will also be a ‘cash exit opportunity’ of up to 33% of Aberdeen China’s shares at a 2% discount to what is called the formula asset value per share compared with a current discount to NAV of 18%.

The managers believe the merger benefits will include greater liquidity in the shares as well as access for Aberdeen China investors to the top-performing trust in the sector over one, three, five and 10 years by NAV total return.

The news comes on the back of a busy period for Abrdn in terms of trust mergers and just a day after it was revealed William Hemmings, the firm’s veteran head of investment companies, will retire at the end of this month.

Find out why abrdn New Dawn is being folded into Asia Dragon Trust

HUDDLING TOGETHER FOR WARMTH

With the cold winter nights drawing in, Troy has also decided now is the time to consolidate and is merging two of its global equity income trusts, the £200 million market cap STS Global Income and Growth and the £150 million market cap Troy Income and Growth.

The smaller trust will go into voluntary liquidation and its assets will be rolled over into STS – formerly known as Securities Trust of Scotland – with Troy Income and Growth shareholders offered the option of up to a 100% cash exit.

Earlier this month Troy Income and Growth suspended its share buyback programme, used to help manage the discount to NAV, as it was close running out of funds to buy in shares under its existing authority.

The enlarged STS will continue to be managed by James Harries and his team and will enjoy lower fixed costs due to its increased asset base, a significantly lower management fee on fund assets over £250 million (0.5% against 0.65% currently) and a significant cost contribution in the form of an 18-month fee waiver on assets transferred.

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Issue Date: 28 Nov 2023