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Investment Companies Insights 31 May 2017 Active management fight back Investment Companies Insights The recent news that Vanguard has launched an on-line platform selling its low cost range of passive and active funds direct to the public in the UK has attracted much press comment. Investors will only be able to invest in Vanguards own funds, mostly passive funds, at an average price of 0.14% of invested amount. By selling its funds directly to UK investors Vanguard is seen by many to be introducing a new price war. For much of the past year the references to costs and charges has been linked to the increasing market share of passive investment. Against this trend of continued growth of passive investment, Q1 2017 saw a reversal of fortune for active management as European fund managers recorded their highest quarterly inflows since 2012. This strong inflow was across equities, bonds and alternative mandates. Equity funds recording the best net inflows, covering both developed and emerging market funds. The supporters of active management have continued to promote a long-term investment approach and the permanent capital model. An approach that plays to the strength of investment companies. This has also been the attributed to the success of Endowment funds, such as Yale University Endowment and other Ivy League University Endowment funds. Closer to home the performance record of the Church Commissioners has shown the benefits of active management and a long term investment horizon. The total return on assets in 2016 was 17.1 percent and over 10 and 20 years the return were 8.3 percent and 9.5 percent. The return was helped by weightings to global equities, property, private equity and timber. As well as a long-term investment approach, promotors of active management have also highlighted the measure of a high active share to increase performance potential v passive investment. The announcement by Witan Investment Trust on the reduction from five to three managers with a global remit is expected to see Witan’s combined active share rise from 70% to 74%. The changes at Alliance Trust to its new multi managers approach also places great emphasis on active managers that run concentrated portfolios (in this case typically 20 stocks). The combination of high active share and different investment styles is expected to deliver not only better, but also smoother and more consistent returns for Alliance Trust shareholders. Sector Activity 2017 has continued to see strong support for secondary issues by investment companies and 7 IPO’s. The year to date figure is £3.7bn, excluding regular tap issues, and in May will be at least £1.3bn, including 3 IPO’s (Downing Strategic Micro-Cap Trust £55.6m, Jupiter Emerging & Frontier Income Trust £90m and The PRS REIT £250m) Tom Durie [email protected] The majority of monies were raised by funds focused on infrastructure, long income property and alternative fixed income and lending. There continue to be a few equities based funds raising capital. In addition to the two IPOs highlighted above, Henderson International Income Trust raised £21.5m and Mid Wynd International is seeking to raise £100m. +44 (0) 203 897 1831 Radnor Capital Partners Ltd is authorised and regulated by the FCA. 1