Investment trusts in Scotland could begin to see their share prices drop in the event of the country deciding to vote for independence from the United Kingdom, creating a fantastic buying opportunity for investors, according to analysts.
The economical uncertainty brought about by a Yes vote could potentially cause some investors, foreign and domestic, private and professional, to avoid Scotland-registered investment trusts, the analysts at stockbroker Winterflood Securities explained.
This could see the difference in value between a trust’s share price and the value of it’s assets increase, bringing about a larger discount for investors. Winterflood suggested that any drop in prices would represent a potentially lucrative buying opportunity because any short-term concerns regarding the trusts’ future in an independent Scotland would soon be negated by relocation to London or assurances that there would be no disadvantages.
In one of their research notes, the analysts explained: “It seems reasonable to assume that some investors, including certain wealth managers, will be minded to restrict or cease active investment in Scottish domiciled investment trusts in the event of a Yes vote until there is greater certainty over the legal and tax environment.
“That being the case, these fu8nds could see their discounts widen. We would regard this as a buying opportunity on the basis that any short term fears would be negated by a change in domicile or the implementation of a favourable regime by a newly independent Scottish government.”
Presently, 41 of the 399 UK based investment trusts are incorporated in Scotland, accounting for assets of approximately £22.6 billion, Winterflood said. This includes some of the biggest trusts, such as the Scottish Mortgage, which is worth around £2.8 billion, and the Alliance Trust valued at £2.5 billion. Out of all 41, the broker estimated that only 27 of them were actually managed from Scotland, whilst the others were really controlled from London.
It went on to explain that the issues that could be faced in the event of a Scottish vote for independence included the matter of financial regulation, the impact of a new and different taxation regime and how investment trust status would be formulated and applied.
In the event of a trust relocating to London, the costs could be particularly significant. The chairman of one reputable Scottish based trust said that it’s board had investigated the costs of relocating their fund to england, and had approximated that it would cost several hundred thousand pounds.
Jason Hollands from advisory firm Tilney Bestinvest told the Telegraph that there was already significant evidence of widening discounts on some Scotland based trusts. He recommended Scottish Mortgage, Alliance Trust and Murray International as potentially lucrative investment opportunities.
“With a year and a half between next week’s vote and the earmarked date for independence, there would be time for trusts’ boards to determine an appropriate course of action.In the world of investment, when some investors panic this creates some potentially significant opportunities for others”, he explained.