Investment Trust Subscription Shares
What are Investment Trust Subscription Shares?
Investment trusts are collective investments similar to mutual funds or unit trusts (See my related article for a detailed description of these). When these investment companies are created they often issue warrants to the initial share-holders to help finance the launch of the company. A less common practice is to issue a subscription share at a later stage in the company's life to secure extra funding (similar to a rights issue)
Like warrants, subscription shares are issued to each share holder e.g. one subscription share for each five shares held and they can either be sold in the market or exercised on a certain date (or dates) at a certain prices (or prices) or may expire, worthless if the underlying asset fails to perform.
This article is about how to invest in these riskier investments, or what to do with them if you receive some by default.
Disclaimer: Information in this and other linked articles is unregulated and for general information only and is not intended to be relied upon in making specific investment decisions. Appropriate independent advice should be obtained before making any such decision.
Investment Trust Subscription Shares
What Are IT Subscription Shares and How do you Value Them?
Subscription shares (or "Bonus Shares") are effectively the same as Investment Trust Warrants and should be valued in the same way (see related warrant article here)
Subscription shares are call options on the underlying Investment trusts usually issued with a very long life (e.g. several years) They can be traded like any share even when the underlying share-price is below the strike price, because someone else may want to take the gamble that the share price will rise significantly before expiry thereby getting them a large geared profit (or lose all of their money) For full details about how to value these see the warrant and option pricing articles below.
Warrants are usually issued at the launch of an Investment Trust company, with a single exercise date, whereas some of the latest subscription shares issues have had more complex arrangements, with multiple exercise dates each with a different exercise price. Here is an example:
Exercise dates and strike prices for BlackRock New Energy Subscription shares (BRNS.L):
exercisable on each of 31 January, 30 April, 31 July and 31 October between 31 October 2009 and 31 July 2014
31 January 2010 to 31 July 2010 46 pence per share
1 August 2010 to 31 July 2012 50 pence per share
1 August 2012 to 31 July 2014 59 pence per share
Investment Trust Books
New Issues of IT Subscription Shares
New Investment Trust Subscription Share Issues
As the credit crunch took effect and banks were less likely to lend to investment companies or indeed to renew existing lending on favourable terms Investment Trust companies needed to raise funds in other ways. Subscription shares have recently been issued by:JPMorgan Emerging Markets (JMG) has issued Subscription Shares (JMGS)
Subscription Shares issued to Qualifying Shareholders on the basis of one Subscription Share for every five Existing Ordinary Shares held on the Record Date. The Subscription Price will be equal to the published unaudited NAV per Ordinary Share on 9 June 2009, plus a percentage premium to such amount, rounded up to the nearest whole penny as follows:
a) exercised between 1 August 2009 and 31 July 2010 - 1% premium to NAV (422p)
b) exercised between 1 August 2010 and 31 July 2012 - 10% premium to NAV (460p)
c) exercised between 1 August 2012 and 31 July 2014 - 30% premium to NAVFidelity Japanese Values (FJV) has issued Subscription Shares (FJVS)
One FJVS Subscription Share was issued for every five Ordinary FJV Shares held on 10 November 2009, at no cost. The Subscription Price payable to exercise each Subscription Share has been calculated to be 55 pence (1% premium to the published NAV per Ordinary Share on 10 November 2009) Subscription Shares will be available to exercise from February 2010 onwards on a monthly basis and you will be able to convert shares up until February 2013.Standard Life UK Smaller Companies Trust (SLS) Convertible Unsecured Loan Stock 2018 ("CULS") at 100p per Â£1 nominal unit
Standard Life UK Smaller Companies Trust PLC (SLS) has proposed to raise up to Â£25 million by placing an open offer of CULS to replace the existing debt facility, repayable in 2011. Qualifying Shareholders can apply for 0.19616288 nominal units of CULS for each Ordinary Share held on the Record Date (28 February 2011) The CULS will return a yield of 3.5% per annum payable semi-annually in arrears on 30 September and 31 March in each year, with the first interest payment on 30 September 2011. CULS Holders can convert their CULS into Ordinary Shares every six months from 30 September 2011 until 31 March 2018. The initial Conversion Price will be set at a 10 per cent. premium to the NAV per Ordinary Share on 23 March 2011
Full List of Subscription Shares Currently In Issue:ABERDEEN LATIN AMERICAN INCOME LTD SUBABERDEEN NEW THAI IT PLC SUB: 31-Jan-13ADVANCE DEVELOPING MARKETS LD SUB: 31-Oct-11BLACKROCK NEW ENERGY IT SUB: 31-Jul-14 DUNEDIN SMALLER COMPANIES IT PLC SUB: 28-Feb-12ECOFIN WATER & POWER OPPORTUNITIES SUB: 31-May-12FIDELITY ASIAN VALUES PLC SUB: 31-May-13FIDELITY JAPANESE VALUES PLC SUB: 28-Feb-13GEIGER COUNTER SUBS: 31-Jan-11HENDERSON OPPORTUNITIES TRUST SUB: 15-Feb-14HGCAPITAL TRUST PLC SUB: 31-May-13IMPAX ASIAN ENVIRONMENTAL MARKETS SUB: 31-Oct-14INVESCO ASIA TRUST PLC SUB: 31-Aug-12JP MORGAN ASIAN IT PLC SUB: 31-Mar-14JP MORGAN BRAZIL INVESTMENT TRUST PLC SUB: 30-Jun-13JP MORGAN CHINESE IT PLC SUB: 15-May-13JP MORGAN EMERGING MARKETS IT PLC SUB: 31-Jul-14JP MORGAN INDIAN IT PLC SUBS: 02-Jan-14JP MORGAN JAPAN SMALLER COMPANIES TRUST PLC SUBS: 31-Mar-14PERPETUAL INCOME AND GROWTH INVESTMENT TRUST PLC SUB: 31-Aug-13RCM TECHNOLOGY TRUST PLC SUB:10-Apr-12SCHRODER ASIA PACIFIC SUB: 31-Dec-12SCHRODER UK GROWTH PLC SUB : 31-Jul-12SR EUROPE INVESTMENT TRUST PLC SUBS: 24-Apr-12THE THROGMORTON TRUST PLC SUB: 31-Oct-11WORLDWIDE HEALTHCARE TRUST PLC SUB: 31-Jul-14
And Some Warrants:ABERDEEN ASIAN INCOME WTS: 31-May-13ABERDEEN ASIAN SMALLER COMPANIES INVESTMENT TRUST PLC WTS: 30-Nov-10JUPITER GREEN IT PLC WTS: 31-Jul-11
Derivatives: Options, Warrants and Futures
List of Investment Trust Subscription Shares
JP Morgan has the widest range of Investment Trusts with Subscription Shares in issue:
JPMorgan Asian Investment Trust
JPMorgan Chinese Investment Trust
JPMorgan Emerging Markets Investment Trust
JPMorgan Indian Investment Trust
JPMorgan Japanese Smaller Companies Investment Trust
Here are a few others currently available:
Aberdeen New Thai Inv Trust PLC
BlackRock New Energy Investment Trust
Ecofin Water and Power Opportunities Trust
Fidelity Japan Values PLC
Finsbury WW Pharmaceutical Trust
Impax Asian Environmantal Markets
Invesco Asia Trust PLC
RCM Technology Trust