Plenty of noise has been made about how cost disclosure rules, which the government said last month will now be reformed, have made investment trusts look overly expensive and hurt sentiment towards the sector. But there is another major problem for the sector that refuses to go away: wealth managers have continued to consolidate, meaning trusts must get ever bigger if they are to attract professionals' money and survive.
This is one of the reasons we've seen so many trusts merge away or close this year, with smaller trusts looking especially vulnerable. But as the minimum viable asset level for a trust continues to increase, plenty of names still look too small.
Analysts at Winterflood sought to quantify which names might look subscale last year, looking for trusts that had a market cap of less than £200mn, a particularly wide discount or a notable bout of underperformance over a five-year period. They identified 14 funds that could be seen as sub-scale and vulnerable to some form of corporate action.