A review of investment company liquidity in London since 2016
Summary
Liquidity is the lifeblood of equity markets.
Following the events at the Woodford Equity Income Fund (WEIF), in 2019, professional investors, increasingly, focus on liquidity when making investment decisions.
Hardman & Co is employed to analyse liquidity by Authorised Corporate Directors, Depositaries, stock exchanges and for court cases. We have published a number of publicly available reports on liquidity data.
This report builds on our previous work, which analysed the liquidity data for non-financial trading companies, by applying the same analytical techniques to the investment companies (IC) space.
We analyse liquidity for ICs as a whole, compare traditional with alternative ICs, interrogate the data in market capitalisation (MCap) baskets and, finally, by AIC sector.
Liquidity for ICs has not seen the sharp decline experienced by quoted trading companies. However, typically, it is lower than that for trading companies.
Having noted the steady liquidity across time for the IC space as a whole, our work does show that there seems to have been a decline in that for the smallest ICs; this is part of the pressure on these boards, forcing mergers.
Finally, we consider the consequences of falling liquidity and outline some suggestions to help IC teams improve liquidity in their shares to become more attractive to investors; many have recognised the positive impact that sponsored research can have.
