Disclaimer
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.
The Flexible sector continues to be rather hard to pin down. A glass-half-full view might show the sector as a poster child of all that makes investment trusts so great – the ability to allocate capital pretty much anywhere, irrespective of the difficulties presented by illiquidity and unburdened by the confines of narrow mandates. A glass-half-empty view might be that the sector represents a rag-tag of misfits and oddball trusts that perhaps fit nowhere else.
The reality of this sector is that it continues to show a very high dispersion of returns, which has a couple of important consequences. Fundamentally, a sector name should help investors understand (broadly) what they are getting. And secondly, a peer group should represent a reasonable benchmark with which to compare trusts. As it stands, the Flexible sector arguably does neither. As we highlight, trusts continue to show very different return characteristics.
Our previous two attempts (here and here) to define the Flexible sector better have been undone by subsequent events. Since 2021, when we first attempted a categorisation, several trusts have drawn stumps, which means that two of our previous four categories of trusts with similar characteristics are now categories with only one trust. Others have also joined the Flexible sector following changes to their mandate. As a result, and looking at the sector with a fresh pair of eyes, we attempt once again to categorise what some might say is the uncategorisable.
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