‘Real’ assets investment trust fails continuation vote

The JPMorgan Global Core Real Assets (LSE:JARA) investment trust has failed a continuation vote – carried out five years after the trust was launched – and could now sell off its assets and return cash to shareholders.

The trust was launched five years ago to give investors access to “real” assets, such as infrastructure, real estate and transport. These are often income-generating sectors, which during the launch period of the trust gave income investors an attractive alternative to bonds that yielded next to nothing.

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However, since launch the trust has delivered a share price loss, including reinvested income, of -7.5%. It trades on a -20.5% discount to net asset value, according to data from FE Analytics.  

Writing in June, the trust’s chair John Scott said: “The board is fully aware of the disappointing recent share price performance of the company. Since its inception, the company has navigated challenging macroeconomic conditions, including inflation and, in recent times, higher interest rates; its early days were blighted by the disruptions caused by Covid-19 and since February 2022 the world has been living with the consequences of Russia’s full-scale invasion of Ukraine.”

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As a result of the failed continuation vote, the trust’s board has six months to put forward proposals for the reconstruction, reorganisation or winding-up of the trust.

“These proposals may or may not involve winding-up the company or liquidating all or part of the company's existing portfolio of investments. The directors intend to consult with shareholders prior to presenting these proposals,” JP Morgan said.

Investment trusts that own income-producing real assets, either by investments in listed companies or by owning unlisted assets, have been under pressure as a result of rising interest rates.

Investors now have income opportunities from bonds and so do not need to stray into riskier parts of the investment world in the hunt for income. This has knocked share prices and created wide discounts for some investment trusts.

There have also been concerns about net asset values in some investment trusts, as unlisted assets valuations are set by the trust itself, rather than the open market.

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Winterflood, the stockbroker, says that JARA’s failure to pass its continuation vote likely reflects frustration from shareholders with respect to the sub-par relative portfolio returns of the fund and a lack of scale.

It adds: “JARA set out proposals in June to improve such returns, including a reduction in exposure to property over a three-year timeline, but this was clearly not enough for investors who ‘voted with their feet’ and deemed a discontinuation of the fund to be in their best interests, despite the likelihood of an extended realisation process.”

Continuation votes are a permanent feature for some trusts, occurring once a year or over longer periods, such as three or five years.

In other cases, a continuation vote is triggered if a trust persistently performs poorly, or has traded on a wide discount for long periods. A continuation vote can also be called by disgruntled shareholders.