Yahoo Finance Four new investment trusts are launching – should you buy them?
New investment trusts can be an exciting proposition for DIY investors but they are fraught with risks. There are no return track records to rely on and some may not even raise enough money to be viable after a few years.
Investors need to have their wits about them if buying shares in a new fund. There are currently four trusts raising money from savers, covering sectors as far reaching as Chinese stocks and social housing.
Telegraph Money looks at the upcoming launches and assesses whether investors should take the plunge.
Tellworth British Recovery & Growth Trust
Investors have become accustomed to disappointing returns from British stocks. They have missed out on the boom in American tech names, seen dividends collapse as a result of the coronavirus and politics continue to get in the way of economic stability – there is another Brexit deadlock looming.
But that could be precisely the reason to invest. With adversity comes cheap valuations and the potential for a bounce back if dark clouds clear.
This new trust, managed by veteran fund managers Paul Marriage and John Warren will pick "best of British" companies that could fit into one of three groups: “global leaders”, “recovery stocks” that have been unfairly discounted by investors and “technology leaders”.
It will own around 35 companies, including Fever-Tree and games developer Codemasters.
Russ Mould, of fund shop AJ Bell, said taking a contrarian approach to investing is the right strategy: "A trust that is ploughing its own furrow and looking for a neglected area that could be the next big thing may appeal more, at least to patient, contrarian investors."
However, Ben Yearsley, of Shore Financial Planning, said that while the pedigree of the management team is excellent, the trust might mot raise enough money to be run efficiently.
"If the trust is too small then trading costs will be high. It is a tough time to raise money for a British stock fund and so I have my doubts over how big it will grow, unless they have some large investors."
The trust will start to raise money to meet its £100m target on Sept 16 and will begin investing on Oct 7. It will cost 0.65pc.
Triple Point Energy Efficiency Infrastructure Company
Clean energy-focussed investment trusts have been reliable income payers this year as the old guard of banks, miners and oil companies slashed payments.
This new trust adds another name to the clean energy space, which includes investment companies such as JLEN Environmental Assets and Gresham House Energy Storage. It aims to yield 5pc a year and deliver total returns of around 8pc a year.
It will do this by investing in companies that “facilitate the transition of businesses and processes to a zero net carbon emission,” such as combined heat and power systems which capture and utilise the heat from the "electricity generation process".
Dzmitry Lipski, of fund shop interactive investor, said: "Energy-focussed infrastructure investment trusts have been behind a lot of fund raising in the past several years and can be a useful for dividends. But it is a crowded sector and the trust premiums are high.
"The trust could be a good diversifier and income play. And it seems likely that appetite for alternative energy won’t go away," he said.
One drawback, he noted, is that the sector is susceptible to variables such as government interventions and changes in energy prices.
Triple Point is a specialist asset manager which manages £1.5bn and has £225m invested in energy and infrastructure projects. It wants to raise up to £200m for its new trust, which will charge 0.9pc. Fundraising closes on October 13.
Baillie Gifford China Growth Trust
While not technically a new launch, this investment trust is an exciting prospect for adventurous investors as Baillie Gifford takes over as managers.
The £190m Witan Pacific Investment Trust invested across all of Asia using four different asset managers, including Aberdeen Standard Investments and Dutch group Robeco. But it is swapping to Scottish fund house Baillie Gifford and will now solely invest in China.
Baillie Gifford has a good track record in the sector. Its flagship Scottish Mortgage Investment Trust was an early investor in e-commerce giant Alibaba while it was still a private company, which reflects its strong understanding of the country.
Up to 20pc of the trust could be invested in private companies and Baillie Gifford's China fund has also been a top performer, returning 600pc versus 364pc for the average peer since launch in 2008.
Mr Lipski said: “Baillie Gifford could certainly boost demand for the trust – and in turn the share price. They have a good track record of investing in Chinese stocks."
However, he raised concerns about demand for another China investment trust. Investors already have the option of the £1.65bn Fidelity China Special Situations and the £375m JPMorgan China Growth & Income.
“The only caveat is that there are already two large, long-established and successful China investment trusts. We would question if there is room for any more,” Mr Lipski said.
The trust will charge 0.75pc and have between 40 and 80 holdings. Details about the timeline for the change in manager will emerge at a shareholder meeting this week.
Home Reit
Home Reit will buy or build accommodation across Britain and rent it out to groups and charities that provide low-cost accommodation to the homeless. It aims to yield 5.5pc and deliver total returns of 7.5pc a year.
Mr Lipski said he will be watching the launch with interest.
“It is good to see the investment trust sector stepping up to the plate on important issues that may also have been exacerbated by Covid-19. We don’t know the team, but understand that they are experienced and launched a highly-successful social impact real estate fund in 2018 which is now one of the largest in Europe.
“Thispresents potential for an interesting income play as part of a diversified property and income portfolio,” he said.
However, Mr Yearsley raised concerns over the feasibility of its return target.
"The social house space is interesting but returns of 7.5pc sound too high. Social housing is often government funded, and returns will be limited," he said.
The trust is expecting to open the fundraising on September 22 and close it on October 6 and. It will charge 0.85pc in fees and seek to raise £250m. It will be managed by Alvarium Investments, a specialist £14bn “real assets” fund manager.
