The meetings, which saw shareholders vote on Saba’s proposals to replace the current boards with their own nominees, both saw investors back the incumbent leadership.

Over 60% of votes cast in each meeting were against Saba’s proposals. 98.5% of Baillie Gifford US Growth’s non-Saba shares voted against the resolutions, while just 0.8% of Keystone’s non-Saba shares backed the US hedge fund’s proposals.

See also: Gold funds surge in January as tariff fears mount

The result follows on from a similar vote at Herald Investment Trust on 22 January, at which investors also backed the existing board.

CQS Natural Resources Growth & Income and Henderson Opportunities Trust will hold their own general meetings on Saba tomorrow, before the European Smaller Companies Trust meets on 5 February.

Edinburgh Worldwide shareholders will vote on 14 February.

As with Herald, shareholder engagement was high with 78.4% of total voting rights being used at the Baillie Gifford US Growth trust meeting.

Richard Stone, chief executive of the Association of Investment Companies (AIC), said: “It’s encouraging to see so many shareholders of Baillie Gifford US Growth and Keystone Positive Change come out and vote on this critical issue.

“The impressive turnout of retail investors demonstrates what can be achieved when shareholders are informed, enabled and motivated to have a say on their trust. Our campaign ‘My share, my vote’ aims to change the Companies Act so everyone receives information on their company and can vote.”

Having previously calculated the annual management fee quarterly as a percentage of NAV, the percentage rate will now be applied to an equal weighting of the average closing daily market cap and the NAV at the start of each quarter.

The trust’s board said that the new agreement could save £1.6m compared to a fee based solely on NAV.

John Leggate, chair of Gresham House Energy Storage fund, said: the new fee arrangement “better reflects” current market conditions and investor sentiment.

See also: PA Live A World Of Higher Inflation 2025

“The new arrangements further build on the significant alignment between the manager and shareholders by virtue of their existing substantial share ownership. 

“The next three years will involve a very intense workload for the Manager as the company delivers on its three-year plan and the Board will keep the fee arrangements under review on an annual basis.”

Ben Guest, fund manager of the fund and managing director of Gresham House New Energy, added: “We recognise the past 18 months have been tough for all shareholders.

“We are pleased to have concluded these revised fee arrangements which further motivate the manager to deliver for shareholders. Our focus is squarely on delivering against the three-year plan unveiled during the Capital Markets Day last November.”

The trust currently trades at a 62.7% discount, according to the Association of Investment Companies.

The regulator is consulting on plans to introduce a single standard for corporate bond prospectuses, which would cover issuances of any size.

According to the FCA, this would reduce costs and barriers for companies raising capital while providing investors the information they need to make an informed decision, the regulator said.

The proposals aim to encourage listed companies to offer bonds in smaller sizes, improving investment opportunities for wealth managers and retail investors.

Meanwhile, the regulator has also proposed a simplification of requirements that apply to listed companies when they issue further shares.

“We’re opening the door for corporates to issue bonds in small sizes so that a wider range of investors can invest in them. That’s more funding for companies, more easily, and more choice for investors too,” said Simon Walls, interim executive director of markets at the FCA. 

“We want to make sure investors have the information they need to make informed decisions about risk while removing unnecessary costs and widening access.” 

PA Event: PA Live: A World Of Higher Inflation 2025

Reaction

Investor Access to Regulated Bonds (IARB), an industry working group sponsored by the London Stock Exchange, has advocated for increased retail and wealth investor access to bonds.

Commenting on the proposals, IARB chair Stacey Parsons said: “Change can only be achieved with the modernisation of both regulation and historic market practices. Today’s consultation from the UK Regulator allows exactly that.

“Offering industry stakeholders the opportunity to support a simplified and renewed regime removing complexities and delivering broader investor participation to the largest capital market in the world: Bonds. It is critical we support these changes, alongside the right education and guard rails for investors.”

See also: Is it time to re-consider thriving China funds amid their rally?

Michael Smith, head of debt capital markets at Winterflood, added: “It’s important that the proposals give issuers choice. Issuers can continue to use high denominations if they want to – but the incentive to do so, which has driven the market to favour high denomination wholesale-only bonds, is being removed. If the disclosure regime is the same irrespective of the denomination, surely, using a lower denomination makes sense because this gives you a bigger primary and secondary market. This is additive demand too.

“If an issuer really wants to restrict retail access, it can, it will select a high denomination.  I anticipate this will be the case whilst advisors and issuers observe what their peers do.  But I look at the corporate bonds that have been issued over the last few years and I just don’t see many that wealth managers and even individuals wouldn’t want to be restricted on.

“Using credit ratings as a proxy for risk, bonds listed in the UK are predominantly investment grade. Investment grade doesn’t mean risk free but if you’re going to expose retail to bonds, this is precisely where you start.  So, we are fully supportive of what the FCA is doing here.  Retail had access to bonds before 2005, so it’s not like we’re breaking new ground.”

While the cut was anticipated, the ECB has sought to address weak eurozone growth with its fifth cut since June of last year.

However, David Zahn, head of European fixed income at Franklin Templeton, expects rates to fall further to 1.5% by the end of 2025.

“Analysts forecast further cuts, potentially bringing the rate to 2% by the end of 2025. The eurozone’s stagnant economy, with a Q4 2024 GDP growth of 0.0%, suggests a need for additional monetary easing. While inflation remains a concern, the economic slowdown is likely to take precedence.

“The upcoming March forecast will be pivotal in confirming the trajectory of increased ECB rate cuts throughout 2025. A more accommodative ECB should be supportive of European bonds, specifically the short end of the market.”

PA event: A World Of Higher Inflation 2025

Central banks diverge

The latest ECB cut follows the Fed’s decision to keep rates at 4.25-4.5% yesterday evening (29 January).

“The ECB’s decision to cut rates by 25bps, while the Fed appears set to hold rates steady for longer, highlights a growing divergence in monetary policy between the regions,” said Morgane Delledonne, head of investment strategy at Global X ETFs.

“While eurozone GDP remains stagnant, economic conditions are deteriorating further in France and Germany.

“Despite acknowledging that inflation has not yet returned to target, the ECB seems more focused on supporting growth, prioritising economic stability over potential inflationary risks.

“In contrast, the US and UK continue to balance persistent inflation concerns with economic resilience, suggesting a different policy outlook. The muted market reaction implies that this divergence is already fully priced in.”

See also: Is it time to re-consider thriving China funds amid their rally?

Neil Birrell, CIO of Premier Miton Investors and lead fund manager on the Premier Miton Diversified fund range, said the diverging path of interest rates will be a key consideration for the ECB at future meetings.

“The economy continues to show signs of fragility, evidenced by the Q4 GDP data, with the key French and German economies shrinking at the end of last year, although the outlook for inflation looks to be as positive as could be hoped.

“One of the key considerations for the ECB will be just how far they can diverge from the Fed through the rest of the year. While they will say they will act independently, as they have to, they will have a keen eye on the euro given it is so close to parity with the dollar.”

The rise of index investing. When I started in 2011, most money was managed actively. But that year, Vanguard came to town. Cue a price war in passive, and a tough decade or so for stockpickers.

No Amazon/Apple/Tesla? No luck.

The mindset has completely shifted. Now, the default in most people’s minds is to be in an index – and moving away from that has a much higher bar. To be fair, Warren Buffett has been saying “just buy the index” for decades. The world finally listened.

Of course, that’s now led to suggestions that the pendulum has swung too far (one academic paper claimed it was “worse than Marxism”, which feels a little punchy). But I think what it’s doing is squeezing inferior and expensive active managers out of the market. Active isn’t going away – the world is too full of people looking to make money and to take risks, and to bet they know something someone else doesn’t – it might even get a little better once the field has cleared.

Q: What is the investment topic most often brought up by clients/investors?

Bloody bitcoin. It’s extremely aligned to massive rallies in crypto, which seem to happen every couple of years. But each time it does, we get asked whether we’ll invest. And usually there’s no more depth to the conversation than “it’s gone up a lot” with a side order of “my friend/colleague/personal trainer bought some years ago and now they live in Dubai”. It’s exhausting.

Personally I think the crypto experiment is super interesting (I have a little bit of bitcoin and Ethereum), and watching financial history repeat itself at warp speed is often quite funny. But it ain’t going into portfolios, no matter what Donald Trump is tweeting.

Q: What piece of regulation has had the biggest impact on your day-to-day role?

When you write a lot of articles about stocks and history you have to discuss the past. This means coming into contact with COBS 4.6, the regulation that talks about presenting past performance, and all the disclaimers around doing that. I understand the regulation, but is there any other regulation which is followed to the letter, but not the spirit?

See also: Mike Riddell on bonds: Panto-modium in 2025

Almost everyone in the industry talks about and uses past performance as a way to help judge future performance (in direct contrast to the regulation). After all, what else is there to look at; if I rock up and don’t talk about past performance, people will think I’m hiding something.

Q: What single change would you make to the wealth management industry?

I would love to unwind one particular bit of technological process – the ability of clients to check their account on a daily basis. Behaviourally, it’s a terrible thing to do: doomscrolling your own savings.

On a daily basis, markets go down roughly as much as they go up. And as we’re all a bit averse to losses, the down days are more painful than the up days. So if you check daily, you are going to make yourself unhappy.

My mum does it right. She set up her savings and investment plan 13 years ago, immediately forgot the password and then moved on with her life. She checked it during Covid (when she found the password during a clear-out) and was over the moon. Let the investments roll up over time and everyone will be happier.

Read the rest of this article in the January issue of Portfolio Adviser magazine

The AIC launched a campaign to ensure all investors are able to vote, called ‘My Share, My Vote’, in response to what it sees as ‘poor practices’ among some investment platforms and providers in the recent Herald general meeting.

The vote — which ultimately ended in defeat for Saba — sparked a huge turnout among shareholders, with a majority of the trust’s total shares with voting rights participating.

While major platforms have acted to keep customers informed, the AIC said, some failed to pass on voting rights and information, charge customers to vote, and decline to vote shares even when requested to do so.

Over the weekend, the Mail on Sunday revealed that Lloyds-owned platforms Scottish Widows, Embark and Stock Trader had not allowed investors to vote on the Herald proposals, though the bank has said that this has since been amended ahead of the next set of Saba votes at six other trusts.

See also: Franklin Templeton to retire Martin Currie brand after 144 years

The AIC has called on the government to make it mandatory for platforms to pass on company information and voting rights unless the customer opts out, by amending Part 9 of the Companies Act 2006.

The association also wants the government to ensure that where a customer does opt out, the nominee has a periodic requirement to confirm if this remains the customer’s preference, and allow any opted-out customer to opt in, on demand.

Richard Stone (pictured), AIC chief executive, said: “It’s simply unacceptable that investors find themselves left in the dark about their right to vote, prevented from voting or charged for the privilege. If we are serious about shareholder democracy, investors must be able to have their say.

“The large platforms have improved shareholder engagement significantly in recent years, and they have acted quickly in response to the Saba proposals. But we have to move beyond just relying on firms to do the right thing. We cannot have a situation where investors and their advisers are actively prevented from exercising their voting rights because the law allows their platform or service provider to choose not to pass on those rights.

“We are calling on the government to change the Companies Act so that nominees, including platforms, cannot avoid passing on voting rights and information to their customers. Now that investing takes place in a largely digital world, changing the law is essential for the health of our markets and to get more people engaged with their investments.”

An open letter outlining the issues was sent to business secretary Jonathan Reynolds.

Five of the remaining six trusts will vote on Saba’s proposals next week, starting with Baillie Gifford’s US Growth Trust and Keystone Positive Change on Monday (3 February).

DSM initially decided to return capital to shareholders in 2023, following a “dispiriting time for micro-cap stocks”, with shares trading at a discount of between 15% and 1%. Ultimately, the board concluded a managed wind-down would be in the best interest of investors.

Since then, shareholders have received special dividends of 63.9p per share in aggregate, and the portfolio now holds just one listed investment in Centaur Media, alongside a secured loan note in Real Good Food and cash. Net asset value currently stands at £2.3m.

The trust’s investment in Centaur has not yet been realised, according to the board, due to “indications of strategic action by the management team”.

“Your board now seeks the most effective way to return cash to shareholders and limit further costs,” it stated. “With the company’s portfolio significantly reduced and the special dividends paid, your board has determined that it is now the appropriate time to put proposals to shareholders to undertake a members’ voluntary liquidation of the company, which will eliminate certain of the costs associated with running a listed vehicle.”

In order to enter into members’ voluntary liquidation, shareholder approval at an upcoming meeting must reach at least 75%. The meeting will take place at Dickson Minto’s offices in Old Broad Street on the 21 February at 10am.  

Under the proposals, Derek Neil Hyslop and Richard Peter Barker of Ernst & Young have been appointed as the liquidators. They will have the authority to distribute cash to shareholders, after the trust’s liabilities have been paid and wind-up costs have been taken into account. The liquidators are expected to make an initial distribution during the week beginning 3 March 2025 of approximately 2p per share.

One of them has been Jack Barrat, who runs the Man GLG Undervalued Assets fund alongside co-manager Henry Dixon. The fund is first-quartile in the UK All Companies sector over three and five years, and has shown it is possible to deliver credible returns with a value style in the unloved UK. Barrat also runs the Man Absolute Value fund.

The trick, according to Barrat, is a ‘modern’ value approach. This should be based not simply on whether a company is out of favour, in a certain sector or cheap on a price to earnings basis, but a more sophisticated analysis of its tangible asset base, the returns it can make from those assets and the share price.

Barrat says: “We spend all our time on pages 150-280 of an annual report rather than the first 20. For us, it’s much more exciting to learn about a working capital cycle or a depreciation policy within a mid-cap business than it is to go through a glossy PowerPoint presentation from a charismatic CEO.”

See also: Beneath the bonnet: The case for Shell, Nubank, Grab and luxury goods

Once they’ve established the asset base of a company, the managers will look at the cash returns that can be generated. “The cash backing of headline earnings can be very flimsy for many companies and there are frequent adjustments,” explains Barrat. They will also look at all the calls on that company’s capital, such as operating or finance leases.

This helps them avoid value traps – those companies that are optically cheap, but may have further to fall.

“These companies will not be generating cash, or have huge contingent liabilities – that means their business is very fragile.”

Barrat gives the example of one supermarket in the 2000s. The company had positive earnings and operating momentum on a headline basis, but leverage was rising, cash conversion was falling and the capital intensity of the business was growing. He says that while it looked like it was delivering well, the underlying business was weakening.

“This, for us, was a sure sign of a value trap. You can keep it going for a period of time, but there will be a moment of reckoning.”

Read the rest of this article in the January issue of Portfolio Adviser magazine

Companies paid their shareholders £92.1bn in 2024 — 2.3% more than in 2023. Excluding special payouts, however, the underlying figure fell 0.4% to £86.5bn.

Mining company dividends dropped 40%, or £4.5bn, to £7bn. Excluding miners, the headline growth rate was 8.4% over the year, while underlying growth was 4%.

See also: China’s AI breakthrough causes US tech stock tumble

“It is worth highlighting that dividend growth was better outside the highly cyclical mining sector,” said Mark Cleland, CEO of Issuer Services for the United Kingdom, Channel Islands, Ireland and Africa at Computershare.

“In addition, share buybacks are having an impact, diverting an estimated £42-45bn of cash in 2024 to shareholders that might previously have been paid mostly in dividends.”

Some 77% of companies either raised dividends or held them steady in 2024, while the median per-share growth rate at company level was 4.5%.

Elsewhere, banks, insurance companies and food retailers were the largest contributors to growth, while housebuilders were affected by large cuts from Bellway and Persimmon.

2025 forecast

Looking ahead, Computershare anticipates a muted outlook for payouts in 2025, with median dividend growth per share expected to continue at 4-4.5%.

Headline dividends are expected to reach £92.7bn — up just 0.7% year on year — while the underlying total (which excludes special dividends) is set to rise 1% to £88.2bn.

Computershare’s Cleland said the predicted typical company dividend growth for 2025 is “modest” in the context of UK inflation, and will be impacted again by some notable cuts in the year ahead.

“The report indicates that sharply rising borrowing costs will affect government finances, economic growth, business investment, profit margins and consumer spending.

“These higher market interest rates will likely have an impact on the ability of companies to generate cash for shareholders.”

PA Events: PA Live: A World Of Higher Inflation 2025

David Smith, portfolio manager at Henderson High Income trust added: “The impact of the UK Budget is likely to curtail dividend growth for some domestic businesses given corporate margins are coming under pressure from the increase in National Insurance and minimum wage. However one must remember that 75% of the UK market’s revenues are derived overseas where the global economy is improving.

“Additionally the outlook for dividends in the banking sector is robust, especially in an environment of higher for longer interest rates, while the negative impact from dividend cuts in the mining sector is coming to an end.

“The trend for companies to buy back their shares with excess cash at the expense of special dividends continues, however, underlying dividend growth next year should be supported by international earners and banks, while dividend cover for the UK market in aggregate is healthy.”

Major European energy firms are poised to offer “big strategic value” as the world transitions towards decarbonisation, according to JOHCM’s Ben Leyland.

Leyland, who co-manages the JOHCM Global Opportunities fund alongside Robert Lancastle, cited UK oil giant Shell as being primed to benefit from this long-term theme over the next decade and beyond. Shell currently accounts for a 3.3% weighting in the fund, according to its December factsheet, marking it as the seventh-largest position within the 39-stock portfolio.

“What we’re really interested in is the need to invest in energy infrastructure over the next 10 to 15 years, and to move energy infrastructure broadly in a decarbonised direction,” he explained.

“It’s not about taking clear views on whether this is solar, wind, renewables or nuclear – or on whether carbon capture and storage, or hydrogen technologies, are the next big thing. These have their moments in the sun and then dissipate.”

In terms of European energy majors generally, Leyland said they tend to focus more on ‘midstream’ and ‘downstream’ opportunities as opposed to ‘upstream’. ‘Upstream’ refers to the exploration and production stages, while ‘midstream’ includes storing, processing and transporting oil, natural gas and gas liquids. The ‘downstream’ stages involve refining crude oil into fuels.

Leyland explained: “The recent action to launch US energy measures has been to double down in upstream.

“What we like, particularly when it comes to Shell, is that while they do have upstream [capabilities], the real value of the company is the midstream and downstream assets, which ultimately are going to have
big strategic value in the transitioning world.”

He added that Shell’s gas-trading division is also attractive, which was supplemented by the firm’s £47bn acquisition of gas exploration firm BG in 2015.

“There are multiple positives. The fact that LNG [liquefied natural gas] is a tradable transition fuel to help the world towards the decarbonisation agenda is one. Also, the fact Shell is paring back its downstream assets and moving its refinery hubs towards areas such as Rotterdam.

“These areas are well located in that they are industrial hubs for other hard-to-help sectors. So, steel-making or cement companies, which are going to find it very difficult to meet all of those net-zero targets – they are going to need technologies like carbon capture and storage in order to make those commitments real.”

Leyland added that Shell is one of the largest petrol station forecourt providers in the world. According to the company’s website, it has 40,000 forecourt locations across the globe as well as an additional 10,000 partner sites. In the UK, Statista figures show that Shell has the second-highest percentage of forecourts at 13.9%, second only to Esso at 15.2%.

“It’s up to [the consumer] whether they buy a petrol, diesel or electric [car], but at some stage, if we’re going to go down the EV route, we’re going to need charging stations for that. As the strong become stronger, the large will become larger. The tail of smaller companies, which cannot make that transition as effectively, is going to start atrophying.

“So this, alongside the strategic value of its midstream and downstream assets to help the energy transition, is what we think will help Shell generate strong returns.”

‘Where profit and purpose go hand in hand’

Nubank and Grab are two stocks which are tackling significant global challenges but are also set to generate strong long-term returns, according to Baillie Gifford’s Rosie Rankin.

The investment specialist director said Brazilian firm Nubank, which is held within the firm’s £1.9bn Positive Change fund, is one of the world’s largest digital banks. Currently headquartered in São Paulo, the Russell 1000 component was founded in 2013 and has more than 7,000 employees. According to a Bloomberg report in November, however, the bank’s parent firm Nu Holdings is considering moving its legal base to the UK.

“[Nubank] was founded with the intent of providing an alternative to the relatively expensive traditional Brazilian banking system,” Rankin explained. “When we first invested, it had around 58 million customers in 2021. Fast forward to today, and that’s around 100 million customers.

“It is incredible growth in a relatively short period of time, and that’s because it’s offering products and services that are really useful to micro and small enterprises.”

Seven out of 10 new jobs created in Brazil are now within micro and small enterprises, according to Rankin, meaning the ability to access affordable banking products easily is an “important driver for change”.

Similarly, an impact stock capitalising on the growing digitalisation across emerging markets is Grab, which she describes as a “southeast Asian super-app”. “Its core businesses are ride-hailing and restaurant delivery, but it does a whole range of stuff, from delivering packages and groceries to e-wallets and financial services. As a result, it has managed to build up a really impressive market share.”

Grab Holdings, which is based on One-North in Singapore, operates across Malaysia, Indonesia, Myanmar, Thailand, Vietnam, the Philippines and Cambodia, as well as its home market.

Hailed by Reuters as the biggest technology company within the south-east Asian region, the company was founded in 2012 and floated on the Nasdaq in 2021, following a SPAC merger with US investment firm Altimeter.

According to Rankin, Grab currently accounts for 70% of the entire ride-hailing market, within around 5% of adults in south-east Asia using the app at least once per month. “That means 95% don’t, so there’s huge potential there in terms of growing the number of users,” she reasoned. “And because it’s so innovative in developing technology solutions, it has been a real magnet for attracting tech talent.”

Rankin added: “Grab has many different services via its app, but they’re united by that one purpose of helping to improve lives and prosperity within south-east Asia. And so, ultimately, it’s a great example of a business where profit and purpose will go hand in hand.”

Through the lens of luxury

Investors shouldn’t give up on luxury goods stocks despite lacklustre results from the sector, according to senior analyst at Killik & Co Mark Nelson, who said the firm’s managed investment service team is taking “a defensive approach” to these types of companies.

“Luxury stocks have been getting a lot of attention of late, with softness in the market being largely driven by the continued weakness of the Chinese economy,” he explained. “The current predicament raises two big questions for investors: is there a long-term structural issue in China and, if that is not the case and it is just a cyclical downturn, when will the good times start to flow again?”

One stock the team owns shares in is Franco-Italian eyewear company EssilorLuxottica, which Nelson said combines a medical device business through its lenses, with a luxury goods one through its frames.

“[It] plays to the structural trend of the growing need for eyecare due to the increasing prevalence of eye conditions among the growing population due to changing lifestyles and demographics. Management has stated that 75% of revenues are vision care-related and therefore less discretionary in nature.”

Generally speaking, the team at Killik doesn’t think the slowing luxury demand in China is structural, despite the fact many investors are drawing comparisons between China and Japan in the 1980s. “While there are similarities such as ageing populations, there are some key differences, too,” Nelson pointed out. “For a start, there remain millions of people who have not yet reached middle-class status in China, and it is this emerging middle class that has been a key driver of luxury goods demand.

“China is an ambitious nation, with grand geopolitical goals which we believe are more likely to be achieved with a prosperous population and a growing middle class. We therefore expect the Chinese government to do whatever it takes to provide the economy with the necessary support in pursuit of these goals.”

In terms of when the performance of the luxury goods sector will turn around, the analyst said this is “much trickier to predict” but that there are “early causes for optimism”.

“China does seem to be making significant attempts to re-ignite the economy via stimulus measures. Additionally, the easing of the interest rate cycle in the developed west should be supportive of increased demand for those markets,” he reasoned.

“Finally, Trump’s election in November’s US election is being seen as a positive for the sector overall, with lower taxes and a currently buoyant stockmarket,both positive for the wealth effect and, in turn, luxury demand in the US.”

Not only this, but lower valuations in the sector could make it ripe for M&A deals, according to Nelson, with Italian luxury fashion brand Moncler allegedly interested in acquiring British fashion house Burberry.

This article first appeared in the January issue of Portfolio Adviser magazine

DeepSeek’s model showed results on a similar level to OpenAI’s ChatGPT at 5-10% of the cost.

Nvidia fell 16.86% on Monday, marking the worst losses for a single stock on record in terms of market cap.

PA Events: PA Live: A World Of Higher Inflation 2025

DeepSeek’s model could rewrite the investment case for artificial intelligence, according to Kenneth Lamont, principal at Morningstar.

“Until now, the conventional wisdom has been clear: the best AI models rely on massive datasets and immense computational power, rewarding scale and favouring hardware giants like Nvidia and Europe’s ASML.

“But DeepSeek’s latest innovations are turning that assumption on its head. The start-up’s new models demonstrate how efficiency gains in AI development can reduce reliance on brute-force computing power. This breakthrough slashes computational demands, enabling lower fees — and putting pressure on industry titans like Microsoft and Google to justify their premium pricing.”

He added that, with many investors heavily exposed to AI’s biggest players, disruption in the sector could ripple through portfolios.

Despite the market shock, Neuberger Berman head of thematic – Asia Yan Taw Boon says the trend is not something new.

“China has always been able to cut the corners and re-create a technology [which somewhat already exists] at a much lower cost given the efficiency ‘DNA’. DeepSeek also said that their key bottleneck is in advanced AI/GPU chips. China is still 4-5 years behind the western world in leading edge semiconductors.

“Without leading edge chips, DeepSeek admits that they can’t scale up their model for a larger user base.”

What next for AI?

Mark Hawtin, head of the Liontrust global equities team, believes the news does not tarnish the investment case for AI.

“We have been crystal clear that the opportunity for AI is immense and nothing in the DeepSeek news changes that. In fact, it can only help the speed of adoption as the infrastructure becomes cheaper and cheaper and potentially a commodity.

“It’s worth flagging Jevons Paradox. When Jevons studied coal consumption in relation to steam engine efficiency in the mid-19th century, he noticed that as steam engines became more efficient, coal consumption increased rather than decreased. As AI gets more efficient and accessible, we could likely see AI skyrocket and turn into a commodity.”

See also: Evelyn Partners sells fund solutions business to Thesis

He adds that AI infrastructure players may well become victims of the “right thesis, wrong valuation” mantra.

“However, there will be a broadening out of the opportunity set. Users of AI to drive productivity and stronger moats will prevail.

“This is early in the cycle and there will be some amazing investment opportunities. Any turmoil around the theme in the short term should be seen as a chance to position portfolios to AI use case winners.”

Aurora had successfully fattened itself up under the management of Phoenix Asset Management, with its assets under management (AUM) up almost 13 times to £193.6m since the firm took charge in 2016. But despite this growth, large wealth managers were still turning their backs on the trust before the merger with Artemis Alpha took place, according to its chair Lucy Walker.

“While we’d had fantastic organic growth, we knew a transaction would be a great opportunity to bring greater scale and liquidity to the trust,” she says. “Being realistic, the demand for size and scale has only grown since Phoenix took over.”

See also: Investment trusts: Growth story in Japan

Yet even after the merger, the newly re-named Aurora UK Alpha trust is not on the radar of larger wealth managers. A full-scale merger without redemptions would have boosted AUM by 64% to £353m, but many shareholders chose to sell their holdings at a lesser discount amid the consolidation process. The trust is only 34.8% larger than pre-consolidation, with assets of £260.9m as at December.

Walker says the trust will still have to double its size to reach the threshold necessary to even be considered by most wealth managers. It is this rapidly rising bar set by wealth firms that has triggered M&A activity among investment trusts to soar to new heights in 2024, she adds.

“The consolidation of wealth managers has been the catalyst without a doubt. When I was a fund buyer at Saracen, my minimum size was £100m, but that was already too low by the time I left in 2020. Then it went up to £250m, then £500, and even up to £1bn for the largest wealth managers. Clearly there have also been the challenges of interest rates normalising, discounts broadening and cost disclosure, but the single biggest factor has been the consolidation of the client base.”

Read the rest of this article in the January edition of Portfolio Adviser Magazine