Binary Capital’s launch of a model portfolio range that will exclusively use investment trusts for equity exposure has been described as encouraging due to the fact the fund structure is underrepresented in most rivals.
The London-based DFM has launched five portfolios in the investment trust MPS range with risk profiles ranging from defensive to adventurous. Each of the portfolios currently holds nine investment trusts, while corporate bonds, gold and property are accessed via ETFs, according to the Binary Capital website.
Association of Investment Companies head of intermediary communications Nick Britton said the launch was encouraging as investment trusts are underrepresented in DFM model portfolios because not all platforms offer the fund structure or, when they do, trading costs can be prohibitive. Liquidity can also be a problem for large MPS ranges running billions of pounds.
Smith & Williamson and Crossing Point are among the wealth managers that use investment trusts in their MPS ranges. Nevertheless, Britton said Binary Capital’s launch was notable for its commitment to use investment trusts exclusively to access equities.
Binary Capital CIO Saftar Sarwar highlighted the benefits of investment trusts as being the permanent capital structure, the ability to invest in private companies and the opportunity to borrow to increase conviction in the managers’ best ideas.
Sarwar thought open-ended funds are often marketed over investment trusts because they deliver higher margins to the fund house.
Scottish Mortgage and Personal Assets are among the investment trusts to feature in the range, he told Portfolio Adviser.
He said Scottish Mortgage offers investors access to private markets, but without the excessive fees you might see in hedge funds or private equity funds offering similar performance. He said Personal Assets was at the other end of the spectrum, offering capital preservation through its multi-asset portfolio.
The Binary Capital website said the MPS range is available on platforms of choice and Sarwar said they have not yet encountered a problem with platforms unable to accommodate investment trusts.
The MPS range is rebalanced quarterly.
“Naturally if an investment trust was trading at a significant discount or premium we would take that into account when it came to the rebalancing or even selling that holding from the portfolio. That could be a flag for us to look at,” he said.
Nevertheless, he said the investment trusts they hold are managed well in terms of their discount mechanisms and typically trade close to net asset value or at a slight premium.
Binary Capital also offers MPS ranges that invest in actives, passives and sustainable funds as well as bespoke portfolios.
