Last week after thinking about it, I decided to top-up my ISA and invest in the IPO for Octopus Renewables Investment Trust. The IPO itself was a success being over subscribed and raising £343m.
The trust aims to invest in solar and wind power in the UK, Europe and Australia and once it’s up and running it should pay out 5% a year in dividends with a total return of 7-8%.
I must thank DIY Investor for his influence (and I’ll blame him if anything goes wrong) but it can make good sense to invest in an Investment Trust like this upon IPO or when it’s raising capital. There’s not Stamp Duty or trading fees to pay and the funds (generally) trade at a premium.
Downsides include the fact that IPOs are few and far between – particularly for private investors – institutions often get first crack of the whip. Also if the IPO is popular, more money may be vying for the same number of shares so your investment can get scaled back. This happened with the Royal Mail back in 2013 when investors were limited to £10,000. Also, there’s no guarantee that your new shares will be worth anything. Royal Mail shares trade at about 220p after floating at 330p.
Unfortunately for me, my investment got scaled back by around 25% meaning I only got 75% of the shares I wanted. I’m not too upset but if I had have known that could have happened I might have invested more to get the desired amount. £343m is a lot of money and they had hoped to raise £250m with an extra £100m as an overprovision. The fact that they exceeded even the £343m is very encouraging. For me, since I’m just a regualr investor without any great judegement or forsight, the success maybe shows some of the wisdom of crowds which will help me sleep at night.
One irony of the stockmarkets is that they are there to raise money for investments yet few companies or money actually get raised. In 2018 around £6 billion was raised on IPOs on the London Stock Exchange and the market capitalisation of the FTSE100 is about £2 trillion. Ten time more gets paid out in dividends than gets raised through IPOs. So in some ways the stockmarket can be seen as a way of gambling on the success or failure of businesses using existing capital rather than directing new money to new ventures.
There are of course Private Equity & Venture Capital companies that make investments (be it loans, investment, advice, expertise or buy-outs) in smaller companies but that’s a whole other story.
For what I call Green Capitalism, Octopus Renewables is a perfect fit for us. The dividend fits into my Ready, Aim, Fire strategy – steady, low(ish) risk and generous – if it can pay dividends for the next 25 years then I’m more than happy. Also the investment matches my own personal investment ethics. It sits along side our other investments in UKW, Abundance and some Community renewable investments that we made over the last number of years. It’s a buy and hold investment for me and I’ll be keeping an eye-out for other investments to put my money towards
When investing your own money, please do your own research.
Good luck, GFF