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Consolidation expected as heavyweight UK equity income trusts look for new homes

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The UK equity income sector could see consolidation in 202

David Brenchley, Investment Week, 23 April 2020

UK equity income investment companies could see some consolidation, according to investment trust analysts, as two of the sector’s largest offerings begin what could be high-profile searches for new management teams.

At the start of April, the board of the £455m Perpetual Income and Growth (PLI) announced it had parted company with manager Mark Barnett.

That was followed a fortnight later by the £509m Temple Bar (TMPL) serving a 12-month notice to Ninety One after long-serving manager Alastair Mundy took a leave of absence for health reasons.

While TMPL has not yet sacked Ninety One, and insisted it is “certainly possible” that the South African firm will continue to manage the trust, analysts are expecting the two established funds to generate interest from rival groups…

Consolidation on the cards?

James Carthew, head of investment company research at QuotedData, told Investment Week “it would be quite nice to see some consolidation”, as “there are an awful lot of funds in [the UK equity income] sector and an awful lot of them are too small”.

“A lot of people have been listing companies that do not have trusts at the moment, but I don’t think it would be positive if we saw two new managers come in and then struggle to justify themselves,” Carthew added.

“I would much prefer that one or both got absorbed by a more successful manager in the sector and, because they are all trading close to asset value, that should not be impossible to do.”

Sarah Godfrey, director and investment trust analyst at Edison Investment Research, said the size of the two mandates would make “a feather in the cap of whoever is awarded the mandates”…

On this note, Carthew said ASI’s £61.7m Shires Income has “been quite keen to grow for a while”, and is a trust that has “held up reasonably well in this market”.

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