The Albany and Grampian Investment Trusts, which have combined assets under management (AUM) of £34m, have accepted Troy’s proposal to take control of the portfolios. Existing shareholders of the Albany Investment Trust must now decide whether they want to rollover into Troy Income & Growth, or opt for a cash exit.
Troy has been actively looking to expand through takeovers for some time, as it is the firm’s intention to bring down costs.
"We’ve had the trust for three years and have been very happy with the performance," said Brooke.
"Assets under management have grown from £50m to £81m, but it has been our intention to get this figure up to £100m as quickly as possible, as we want to get the total expense ratio (TER) down as low as the figure on the Trojan Income fund."
"We’ve been looking for the possibilities of rollover options for some time and we’re happy to acquire these two."
The TER of the Troy Income & Growth Trust has already come down to 1.25 per cent from around 1.5 per cent, but it is still higher than that of Trojan Income, which only charges 1.04 per cent – the lowest in the entire IMA UK Equity Income sector.
Brooke’s FE five crown-rated Trojan Income fund tops its IMA UK Equity Income sector over five years with returns of 24.77 per cent.
"When investors want to choose between the two portfolios – which are virtually identical in their composition – we want their decision to be based exclusively on whether they prefer the fund or investment trust structure," he explained.
Since taking over as lead manager of Troy Income & Growth in August 2009, the portfolio has returned 65.1 per cent, compared with 32.4 per cent from its FTSE All Share benchmark. It has also been far less volatile.
Performance of trust vs benchmark since August 2009
Source: FE Analytics
In the five years prior to Brooke’s appointment, the portfolio had underperformed the All Share by some 48 per cent, with losses exceeding 20 per cent.
The manager says the biggest priority when taking over the trust was to control the discount, which had widened out to more than 20 per cent.
"After a good start, we restructured the portfolio and put in place a discount-control mechanism, similar to the one imposed on the Personal Assets Trust around 10 years ago," he explained.
"We knew we had to shrink in order to grow, [so] took down the number of shares from 121 million to 110 million. It was a brave call to be made by the board, but it has paid off."
As of 8 June 2012, the number of shares stood at 152.6 million.
"The discount has been close to zero for some time now, which is particularly appealing to financial advisers who don’t want to recommend a trust with high discount volatility," Brooke added.
News of the takeover saw shares in the Albany Investment Trust jump from 239p to 278p, and the discount narrow from 19 to 4 per cent.
"We’d like to think shareholders of the trust are happy at this news and decide to take the rollover option which preserves their capital gains tax (CGT) benefits, rather than opting for cash which does not," the manager finished.