Interactive Investor

Tech trust plans to issue new shares to keep lid on premium

13th August 2020 13:32

Kyle Caldwell from interactive investor

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The trust has put in a strong showing so far in 2020, comfortably outpacing the Dow Jones World Technology index.

Allianz Technology Trust (LSE: ATT) is seeking shareholder approval to increase the number of new shares it can issue to keep its premium under control.

The trust, managed by Walter Price, has put in a strong showing so far in 2020, with its recently published interim results to the end of June reporting a share price return of 36.9% and a net asset value (NAV) return of 36.7%. The performance outshone the trust’s benchmark, the Dow Jones World Technology index, which in sterling terms returned 22.4%.

Its performance has not gone unnoticed by investors, with the trust moving to a small premium in April as markets started to recover ground and investor confidence returned following the Covid-19 market sell-off.

The board of Alliance Technology Trust notes since its last general meeting on 19 May that the trust has traded on an average premium of 1.04%. At present, the premium stands at 2.9%.

In order to satisfy investor demand and ensure the premium does not overheat, the board has since 19 May issued over 2.7 million shares at a premium to the prevailing NAV at the time of issue. In turn, this has raised over £60.4 million of new capital.

The board is proposing to issue more shares of up to 10% of the company’s issued share capital. The trust’s total assets stand at £949 million.

Separately, the trust is proposing issuing up to 20 million shares. Any new share issuance will be issued at a premium to the prevailing NAV to meet demand from investors. By issuing new shares at a premium the extra liquidity will, in theory, keep the premium under control. In addition, issuing new shares at premium, rather than a discount, is a good thing for existing shareholders as their shares are not diluted.

Ewan Lovett-Turner, head of investment companies research at Numis, explains: “Being able to issue a significant amount of share capital on a non-pre-emptive basis is not a problem, in my view, because the issuance is at a premium – therefore non-dilutive.

“In addition, the fund invests in liquid equities and can therefore deploy the capital. It makes sense to issue shares on an ongoing basis to satisfy demand and ensure the premium doesn’t get too large.”  

In addition, an increase in assets could lead to lower charges for shareholders in the future due to greater economies of scale.

Matthew Read, senior analyst QuotedData, says: “Existing shareholders should benefit from this growth (increased liquidity and reduced costs), so there’s no real reason to say no. However, while the world is showing signs that it is getting to grips with the pandemic, the growth outlook remains poor. Investors’ appetite for technology trusts is likely to remain strong, so don’t be too surprised if they come back again asking for permission to issue more.”

The proposals will be put to a shareholder vote at a general meeting on 4 September.

Customers of interactive investor who hold shares in Allianz Technology Trust can vote online for free: find out how here. The deadline is 11am on 2 September.

 

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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