Are renewable ITs really ITs?

[dundas666]

Was just wondering if a lot of the renewable investment trusts are really ITs, or are actually more like normal shares?

I tend to think of ITs as simply comprising multiple small holdings in real businesses like Shell, Barclays, Tesla etc, based on a theme. Of course some are fixed interest not equities, or a mix, but in general they own a very small percentage of any company and so the risk is spread, and as an investor it lets me get exposure to an entire sector without having to purchase separate shareholdings.

However looking at some renewable ITs like The Renewable Infrastructure Group (TRIG), they seem to be actually own the physical assets, and in many cases 100% of them. For example by my calculations around 77% of the NAV of TRIG is in renewable generation sites where they own 100% of the asset (windfarms, solar farms etc).

So it feels like they're actually running a business and are more like a straight-up company than an IT. What do you think? (Also it seems the same for REITs, no?)

Thanks, d6

[mc2fool]

However looking at some renewable ITs like The Renewable Infrastructure Group (TRIG)...

TRIG isn't an investment trust. It's a Guernsey-registered investment company and you'll find that a fair number of what you think are ITs also aren't. However, like many such investment companies they do actually run themselves as if they were ITs. You can take a look at TRIG's annual report*, page 16, for their group structure

* https://documentscdn.financialexpress.net/Literature/1DC7BFB61CBB37BCD6003B6743A991DA/184070370.pdf

However, what you seem to be confusing and conflating is tax structure with investment structure. "Investment trust" is a UK tax structure; it does not necessitate holding the shares of other companies.

[dundas666]

However looking at some renewable ITs like The Renewable Infrastructure Group (TRIG)...

TRIG isn't an investment trust. It's a Guernsey-registered investment company and you'll find that a fair number of what you think are ITs also aren't. However, like many such investment companies they do actually run themselves as if they were ITs. You can take a look at TRIG's annual report*, page 16, for their group structure

* https://documentscdn.financialexpress.net/Literature/1DC7BFB61CBB37BCD6003B6743A991DA/184070370.pdf

However, what you seem to be confusing and conflating is tax structure with investment structure. "Investment trust" is a UK tax structure; it does not necessitate holding the shares of other companies.

Thanks for clearing that up, it was a bit confusing since we seem to treat them as quite similar (AIC screener, Itsallaguess's high yield IT screener) but under the hood they may be different in terms of investment structure. I must admit I kind of assumed they all invested in other companies (or similar) and didn't run their own businesses (with the exception of Law Debenture who have a professional services arm).

[Alaric]

but under the hood they may be different in terms of investment structure.

It's a structure that works for any type of underlying illiquid and unquoted investments where the market quotation absorbs uncertainty about the values of the underlying assets and leaves the secondary market to sort out the problems when there are more sellers than buyers or vice versa. If it's not seen in other parts of the world, the UK tax treatment is mostly benign in that there's no look through from the investor to the underlying holdings other than the requirement to distribute most of the dividend or interest earnings. .


There are some investment companies quoted in the Channel Isles which are under a different legal structure. When they are quoted in London, it would seem they have done a deal with HMRC to be treated for taxation purposes more or less the same as if they were under UK legislation.

[SalvorHardin]

TRIG is a good example where investors might wish to look a bit closer as to what they are buying. IMHO TRIG having 77% of its NAV in operating assets makes it a wind and solar power operating company which has a sideline in running a portfolio. If I owned any TRIG shares I'd classify it in my portfolio spreadsheet as an operating company, not an investment company.

Quite a few investment trusts (and investment companies) run businesses. Around 6% of TR Property's assets are actual properties, with the remaining 94% being shares in property companies. Roughly one-quarter of Law Debenture's NAV is a wholly owned fiduciary services business, which generates roughly 40% of Law Debenture's dividend. An investment company in which I own shares is Bermuda's Ocean Wilsons Holdings, roughly 40% of whose NAV is investments with the remaining 60% being a controlling shareholding in a Brazilian shipping and maritime logistics company.

Real Estate Investment Trusts should not be thought of as investment trusts. They are property companies with slightly different tax rules. The "IT" bit of "REIT" shouldn't be there, unfortunately Britain took the idea (and name) of REITs from America where investment trust doesn't mean the same as in the UK.

[Dod101]

Investment trusts and REITs are simply companies which in return for undertaking to distribute most of their revenue profits, get privileged tax treatment. As I understand it, their actual investment structure does not matter very much.

Re those investment companies incorporated in say the Channel Islands, I always thought that they gained more or less the same tax benefits by being incorporated there. Is that not the case? Quite a number have moved their domicile to the UK in recent years and have adopted IT status here.

Dod

[dundas666]

Another IT like this would be Hipgnosis (SONG), i.e. an operating company and not an investment company.

[Alaric]

Re those investment companies incorporated in say the Channel Islands, I always thought that they gained more or less the same tax benefits by being incorporated there. Is that not the case? Quite a number have moved their domicile to the UK in recent years and have adopted IT status here.

I suspect that at some time in the past, there have been tax complications with IT status for certain types of investment. These could be avoided by incorporating in the Channel Isles.

You can see this with ITs specialising in Bond and similar investments. When in the Channel Isles, their distribution was in the form of dividends, If in the UK, they were able to pay part of their distributions as iterest. In the past with no £ 2000 limit on tax free dividends, the dividend route may have been preferred. The same may apply to infrastructure ITs. If they just lend money to fund a project, they may prefer to distribute ato shareholders as interest.