Winterflood: Independence could create buying opportunity for Scottish trusts

Winterflood Investment Trusts says a vote for independence in Scotland could lead to a buying opportunity for Scottish-domiciled investment trusts.

Scotland is currently home to 41 closed-ended funds with assets totalling £22.6bn including the two largest UK-listed investment companies Alliance Trust and the Scottish Mortgage investment trust.

The impact of independence could prompt some investors to “restrict or cease active investment” in Scottish-based investment companies over the short-term, according to Winterflood’s latest monthly report.

It says: “It seems reasonable to assume that some investors will be minded to restrict or cease active investment in Scottish domiciled investment trusts in the event of a ‘yes’ vote until there is greater certainty over the legal and tax environment.”

However the widening discounts triggered by this investor activity could actually lead to a buying opportunity, adds Winterflood. It says: “These funds could see their discounts widen. We would regard this as a buying opportunity on the basis that any short term fears would be negated by a change in domicile or the implementation of a favourable regime by a newly independent Scottish government.”

The research firm also issued a note earlier this year questioning whether closed-ended funds based in Scotland would have to consider if they will ultimately be “disadvantaged” by independence due to concerns over the ability to maintain dividend pay outs, share buy backs and preferential tax treatment in a separate Scotland.

Baillie Gifford, which runs Scottish Mortgage, has previously said it will remain committed to Scotland irrespective of the outcome of next week’s referendum. Alliance Trust on the other hand has already set up paper companies in England for its savings and investment businesses if Scotland votes to leave the UK.