EDINBURGH Fund Managers' (Edinburgh's) Dunedin Worldwide Investment Trust, plagued recently by poor performance and hefty discounts, yesterday unveiled reconstruction proposals spelling the end of its colourful 101-year existence.
Shareholders have the option of rolling holdings over into a new investment trust with a similar international portfolio to the #400m Dunedin Worldwide or into open-ended investment companies (OEICS) targeting either emerging stock markets or global markets in general. They can also opt for cash.
Unlike investment trusts, OEICS cannot enhance investment performance by using long-term borrowings. But they can be quoted on the Stock Exchange and have independent boards, and they have no bid/offer spread.
Dunedin Worldwide unveiled the reconstruction proposals along with interim results showing a marked improvement in investment performance during the six months to April 30.
Its 18.6% rise in net asset value to 237.65p, although enabled partly by gearing, was marginally ahead of the 18.4% advance in its benchmark, the Morgan Stanley Capital International World Index.
Mike Balfour, Edinburgh's chief investment officer, acknowledged that the major institutional shareholders would probably choose cash because they now have in-house expertise of managing international equities.
Dunedin Worldwide's latest annual report showed Standard Life holding 15% of the trust, Equitable Life with 9%, and French insurance giant AXA-UAP with 8.2%.
But the fund, which was founded in 1896 as the Northern American Investment Trust and is one of the UK's oldest trusts, has more than 10,000 private shareholders who own about 54% of its equity.
Two US arbitrage funds, Liverpool Limited Partnership and Westgate International Limited Partnership, tried to turn the screw on Dunedin Worldwide by quickly building up a joint stake of 10.7% earlier this year. They will almost certainly elect for cash.
But Balfour said the restructuring proposals had been well underway before the US
arbitrageurs piled in.
And he said the successor investment trust, Edinburgh Worldwide, had not been part of the original restructuring plans but had resulted from demand for such a fund from private client stockbrokers, charities, and smaller institutional investors. Balfour admitted that Edinburgh - which received about #1.5m for managing the trust in the year to last October - would probably lose revenues as a result of reconstruction.
But it should be more successful than the recent reconstructions of Kleinwort Overseas Investment Trust and Morgan Grenfell's Overseas trust. Shareholders owning about 91% and 81% of these respective funds opted for cash.
Balfour declined to be drawn on targets but emphasised Edinburgh's confidence that Edinburgh Worldwide would be at least a #65m fund, which would get it into the All-Share Index.
The discount at which Dunedin Worldwide's shares trade to net asset value has been as wide as 17% during the last 12 months but has narrowed to about 7% as the trust has canvassed shareholder opinions on restructuring. The shares added another 1.25p to 223.25p yesterday.
Edinburgh is also rolling three of its international unit trusts into one of the OEICs offered,
Edinburgh Global Equity Fund, making this a #100m vehicle.
The investment house, like some competitors, intends ultimately to convert all of its unit trusts, which contain about #650m of funds, into OEICs.
The other OEIC being offered to Dunedin Worldwide shareholders is Edinburgh Emerging
Markets Fund.
Dunedin Worldwide shareholders must submit their choices by June 26. Balfour sees no bid emerging for the Dunedin Worldwide funds because investors holding 35.8% of the Ordinary shares and 75.0% of the Preference stock have indicated they will vote for the reconstruction.
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