The Buffettology Small Companies investment trust has abandoned plans to pursue an initial public offering in London after failing to raise its minimum target of £100mln to float on the market.
The trust, which styles itself as following the principles of famous veteran US investor Warren Buffett, said overall demand had not been enough to reach its minimum fundraising target, becoming the second investment trust to abandon IPO plans in less than three months after Tellworth British Recovery and Growth trust scrapped its owns offering in September.
Given the current trajectory, another planned investment trust IPO, that of the Schroder British Opportunities trust, is likely to be watched closely to see if its fares any better than its predecessors.
“The Buffett name and the excellent performance record of [asset manager] Sanford DeLand simply hasn’t put enough bums on seats to get its UK smaller companies launch off the ground. Sentiment towards the UK market is at a low ebb and a resurgence of virus cases has further undermined confidence”, said AJ Bell’s Laith Khalaf.
“Smaller companies tend to beat their big blue chip rivals over the long term, but it’s understandable investors see them as being at the sharp end of any impending economic trauma. The Buffettology focus on quality companies should have provided some downside protection on that front, but that’s academic now. Disappointed investors who want exposure to this area could consider the Standard Life UK Smaller Companies trust, which is trading on an 8% discount, or indeed they could invest in the existing Sanford De Land UK Buffettology fund which has a healthy slug of small caps in its portfolio”, the analyst added.
Khalaf said the Schroder trust had the benefit of a bigger distribution network than the other trusts, however, the fund still looked as if it is “facing an uphill battle to pull money in, and the failure of a second IPO will no doubt give Schroders pause for thought”.