Investment trust closure

Tractorboy82

Hi all, if an investment trust closes, what payment do you get, would you get the nav price minus expenses, this sounds logical in my view, but cant find anywhere that tells me. I have shares in aberdeen smaller companies high income trust, and i read they are going to vote on whether to keep it running or close it. But as this has a 16% ish discount, could there ne abit of a run on the share price now. Any thoughts welcome

le_loup

Lots of ITs have "continuation" votes periodically. They are built into the constitution of the company. Most of the time they continue.


Yes the value you get back is the NAV less costs.


It isn't going to happen with this trust.

bowlhead99

I agree with the above. It is worth considering though that one of the reasons some trusts have high discounts is the fact that the assets held may be illiquid and hard to sell in the quantities they hold.

If I am an investment trust fund with an investment into a 'small company' as a relatively large shareholder, where the company only has a market value of £5m and only £100k of shares are traded in a usual week, I will declare my NAV as the company's share price times the number of shares which might come out to £1m... but I would never expect to achieve that price in a fire sale where I had to get rid of the assets quickly to close down my fund.

So, it is not just that the trust would have £100k of one off legal and accounting costs to close down the fund, but also it might 'lose' £100k of NAV off each of its investments. What you get back might be lower than the current share price even if the share price is itself at a big discount. So, you do have to be wary of trusts where investors are dissatisfied and might vote for a windup.

Of course, an investor voting for a wind-up with illiquid assets is a bit like turkeys voting for Christmas because unless you have a really incompetent fund manager who is going to make a real hash of running your fund and destroy value further over the next few months, you are usually destined to cash out less money than could be achieved by letting it carry on gracefully while you sell your shares in the trust on the open market.

They have a continuation vote on this one every 5 years. It's grown 150% in the last 5 years against 100% for the UK income and bond sector as a whole. So, probably unlikely that investors will vote to can it, or that new investors will expect it will be voted to break up and dive to capture value from the current discount.

They had a vote in 2000 and 2005 and 2010, they will probably expect to see the next one in 2020 after this one passes without a hitch.

Tractorboy82

Thanks for the response, ive had money in different investment trust shares for a while but had never heard of a continuation vote