- Deal creates £3.4 billion income giant
- Brings increased scale and liquidity
- Sector’s fourth-lowest ongoing charge
Consolidation is a growing theme across the investment trust sector against a backdrop of stubbornly-wide NAV (net asset value) discounts, increasing pressure on sub-scale funds and shareholder activism, and yet another intriguing combination has just been announced.
JPMorgan Global Growth & Income (JGGI) plans to take over smaller rival Henderson International Income Trust (HINT) in a merger that adds further scale to the former, a hugely popular fund among retail investors.
Expected to conclude by July 2025, the transaction will create a company with net assets of roughly £3.4 billion, cementing JGGI’s position as the biggest beast by far in the Association of Investment Companies’ (AIC) Global Equity Income sector.
Shares in HINT rallied 6% to 177.5p on news of a combination that will afford its shareholders the opportunity to consolidate their investments into a larger, more liquid trust offering exposure to global equities as well as an attractive level of income.
JPMorgan Asset Management will continue to manage the enlarged JGGI, whose shareholders will benefit from a significant fall in ongoing charges to 0.42% versus the current 0.77% on HINT.
GO-TO MERGER PARTNER
JGGI has become the merger partner of choice for trusts with global income mandates, having absorbed The Scottish Investment Trust, JPMorgan Elect and JPMorgan Multi-Asset Growth & Income in recent years.
Under the terms of the latest deal, HINT’s assets will be rolled into JGGI in exchange for the issue of new JGGI shares to shareholders of HINT, which currently languishes on a double-digit NAV discount.
Since JGGI shares trade at a slight premium to NAV and the trust is highly liquid, no cash exit is being proposed.
The combined net assets of the two companies exceeds £3.4 billion, which means the combined vehicle will be the largest investment trust in the AIC Global Equity Income sector by far.
As flagged in the statement to the stock market, there is significant overlap between HINT’s and JGGI’s top 20 shareholders, with over 85% of HINT’s shareholders also invested in JGGI.
SUPERIOR PERFORMER
Short- and long-term NAV total returns from JGGI have significantly exceeded those of HINT, while dividend growth has been greater at JGGI since the trust adopted its dividend policy.
James Macpherson, chair of JGGI, noted the growing calls from investors for consolidation with the emphasis on ‘the need for larger, more liquid vehicles that offer highly competitive cost structures. The proposed combination with HINT provides synergies for both sets of shareholders, reinforcing the company’s position as one of the industry’s largest investment companies, with enlarged net assets of £3.4 billion, and the fourth lowest ongoing charge at 0.42%.’
Macpherson added: ‘JGGI’s long-term performance track record gives my fellow directors and me great confidence in the team’s ability to navigate whatever challenges the future holds and we remain open to further consolidation opportunities.’
ANALYSTS’ VIEWS
Panmure Liberum insisted the proposed combination ‘brings together aligned investment strategies, especially following HINT’s strategic evolution in recent years to increase the focus on capital returns as well as income. The combined vehicle looks well placed to offer a premium level of dividend yield to much of the rest of the sector, whilst JGGI’s approach has successfully generated very significant outperformance.’
QuotedData’s senior analyst Matthew Read said the merger announcement ‘doesn’t feel like much of a surprise given the fact that JGGI seems to be the merger partner of choice for funds with global income mandates - particularly given the scale JGGI has now achieved and the hefty reduction in the ongoing charges ratio the deal is expected to bring; the similarity of the existing mandates; and that this offers HINT shareholders a means to close the current circa 11% discount.’
Ordinarily, Read would like to have seen HINT shareholders given the option of a cash exit in the event that they didn’t want to swap into JGGI.
‘However, with JGGI consistently trading at a small premium, existing HINT shareholders who don’t want to remain invested would still be better off taking JGGI shares and selling them in the market, which suggests take up of a cash exit would likely be low and probably wouldn’t justify the increased legal costs offering this would incur.’
