This in turn means they can hold assets that are less suitable for an open-ended fund, such as direct commercial property (bricks and mortar), where a large redemption might force the open-ended manager into a sale at an inopportune time.
Not all of the illiquid assets that might be held in investment trusts are suitable for income investors – private equity, for instance, is more of a long-term growth investment.
But property in particular has returned to favour because of its income characteristics – rental income comes in a steady stream and is often subject to regular reviews.
Because of their attractive income profile, many commercial property trusts are now trading at a premium to net asset value.
Split-capital investment trusts have struggled to come back into favour since the crisis a decade ago that caused many investors to lose the money they had invested in such shares.
But splits do still exist, generally in simpler, more conventional forms than their predecessors, and they may have something to offer investors in search of an income.
Put simply, a split-capital trust has more than one share class to cater for investors with differing objectives.
Many splits will have an income share class, where investors are entitled to all the income from the entire portfolio during its (usually fixed) lifetime, as well as a predetermined wind-up value, while capital shareholders forgo any income on their shares in the hope of a bigger payout at maturity.
So far 2013 is shaping up to be a good year for new investment trust issues. The majority of launches and secondary issues that have come to the market this year offer an attractive yield – in many cases 5 per cent or above – from a wide variety of less familiar asset classes.
These range from aircraft leasing (Doric Nimrod Air III, initial yield of 8.25 per cent), to student accommodation (GCP Student Living, initial yield 5.5 per cent) and from asset-backed securities (TwentyFour Income Fund, initial yield of 5 per cent) to convertible bonds (JPMorgan Global Convertibles Income Fund, initial yield 4.5 per cent). (All data for the first half of 2013, from Numis Securities).
The income theme has continued into the second half of the year, with much focus at present on senior loans and asset-backed securities, which are seeing strong demand because they offer a floating rather than a fixed rate of income, which is seen as beneficial in an environment where interest rates are likely to rise over the medium term.
Not every investment trust strategy will be suitable for every client, although of course the same is true of open-ended funds.
But what is clear is that for those in search of an income – whether it is a higher income, a rising income, a stable income, an income from equities or a commercial property portfolio, or even aircraft leasing – it is certainly worth considering what an investment trust can offer.
