The investment trusts offering shareholders a way out

A number of investment trusts are set to offer exit options in 2025, giving investors the opportunity to cash in their investments at or near net asset value (NAV). Investors will have to weigh up whether to stay invested in the trusts for the long term, take the cash or even try to take advantage of any short-term opportunity that arises as a result.

Research by Numis has highlighted some 17 investment trusts that will or are expected to provide investors with some form of exit option between now and January 2026. These include trusts that offer redemption facilities every year, and some that do so less frequently.

Tor trusts that are trading at a discount to NAV, a cash exit could create a short-term opportunity to initiate or top up a position – investors could buy the shares at a cheaper price, having then the option to redeem the investment at NAV. That said, it is worth keeping in mind that the performance of the underlying portfolio will ultimately drive returns, so buying just because of the exit opportunity can be risky.

The table below lists investment trusts on a discount with upcoming cash exits – excluding those that offer them every year:

Some of these discounts look attractive, but in context are not particularly wide. For example, Mick Gilligan, head of managed portfolio services at Killik & Co, noted that because Mobius Investment Trust’s (MMIT) discount seldom extends into the double digits, “there is not much to go for here in terms of a discount play, relative to the volatility of emerging markets”.

“However, if someone is looking for emerging markets exposure right now, I think this is an attractive long-term option with the redemption facility helping to keep the discount relatively narrow,” he added. 

Polar Capital Global Financials (PCFT) has delivered strong returns over the past year as the sector rallied. James Carthew, head of investment companies at QuotedData, said that the trust “is in a great place”. “Trump 2.0 looks set to be good news for financials. I can envisage the trust expanding on the back of some decent performance,” he said.

Polar Capital Global Healthcare (PCGH) has delivered top long-term returns compared to its peers thanks to holdings in Eli Lilly (US:LLY) and Novo Nordisk (DK:NOVO.B), but has reached the end of its seven-year fixed life and should be restructured this year. Numis analysts note that the last time this happened in 2017, investors were offered a full exit at NAV less costs, with the option to roll over into a vehicle with a further seven-year life. “We expect there may be reasonable demand for an exit given the circa 15 per cent held by Rathbones and Investec and stakes held by value-orientated investors, but with a market cap of £441mn it has scope to return capital and stay a viable size,” they said.

How useful are cash exits?

There is some debate on the advantages and disadvantages or cash exits for long-term investors. Broadly speaking, “these can serve as an attractive discount control and potentially stimulate demand for an investment company”, Numis analysts noted. They can “give the needed confidence to invest, knowing that an exit at close to NAV is available if the investment case does not play out”, they added. 

Gilligan added that discounts “reflect a surplus of supply over demand” and tender opportunities provide investors who wish to exit a way of doing so, reducing the imbalance between the two. “It is also helpful to those that wish to stay invested in that it enhances their net asset value per share by reducing the number of shares in issue,” he said.

However, some argue that cash exits should not be too frequent. Carthew branded 100 per cent annual exits “a really bad idea”.

“I think they encourage short-term thinking, cost too much in terms of management and board time (plus adviser fees), and run the risk that a perfectly good trust disappears just because an exit opportunity happens to coincide with a short-term bout of poor performance or some panic in markets,” he argued.

For example, Diverse Income Trust (DIVI), Bellevue Healthcare (BBH) and Miton UK Microcap (MINI) have all significantly reduced in size over the past few years, with the latter in the process of winding up.

“A key feature of investment companies is that they can provide insulation from knee-jerk investor flows in specialist asset classes, but ultimately if fundamental demand ebbs away, then it is appropriate that investors are offered an exit,” Numis analysts argued.

Ideally, managers should be judged on how they perform over a market cycle, but here too timings vary, Carthew said. Three years seems too short, while “five years is okay and seven is probably perfect, but not everyone will have that much patience”, he concluded.