Could this change? Research from the Lang Cat, commissioned by the AIC, has identified a number of barriers, including platform costs and access, difficulties finding relevant information, and perceptions of greater complexity and higher risk compared to open-ended funds.
More encouragingly, the Lang Cat spoke in depth to four advisers who did use investment trusts, asking specifically about some of the barriers that others perceived or experienced. Their responses indicate that these barriers are far from insurmountable.
On platforms, Simon Munday of Prosperity IFA points out, “There are so many options now for fully open-architecture platforms that enable us to hold pretty much anything we want.” The AIC publishes on its website detailed information on the costs of holding investment companies on all major adviser platforms, updated regularly.
How about researching investment trusts? Peter Adcock of Adcock Financial finds that the process “isn’t hugely different” from open-ended funds. He uses FE Trustnet and Morningstar.
And the complexity of investment trusts? Elements such as discounts/premiums and gearing do need to be considered, but Andy Parkes of Finance Shop believes that they present opportunities as well as risks. “Elements such as gearing clearly offer the opportunity for performance to be stronger than their open-ended equivalent. There’s also the opportunity to buy something at a discount to the net asset value,” he says.
Colin Low of Kingsfleet Wealth agrees. “It’s about looking for opportunities as well – there can be very good trusts out there trading at big discounts, but opportunities are being missed because of laziness and a lack of understanding. Too many advisers find reasons not to go down a certain route just because they don’t understand it.”
Then there is the question of liquidity, which has become very topical. Parkes, whose firm advises on assets in excess of £600m, says that this is an important consideration when selecting investment trusts “to make sure we’re comfortable and we feel that they’re going to raise enough capital to get to a size that’s big enough to run across the portfolios”.
But this is another issue that cuts both ways. Munday recalls the suspension of open-ended property funds following the 2016 EU referendum. “Clients trying to take an income from those property funds lost the ability to maintain the goals of their portfolio. Investment trusts offer a point of difference here in having better liquidity.”
Finally – and perhaps most crucially – these advisers agreed that considering investment trusts was part of meeting the criteria for ‘independence’. “Providing the choice of investing in an investment trust is part of being an independent adviser,” says Low. Munday agrees: “It’s important to consider investment trusts. If we didn’t then we wouldn’t be independent.”
During training sessions with advisers in the latter half of this year, the suspension (and now collapse) of Woodford Equity Income and the fate of Woodford Patient Capital investment trust have been hot talking points. If some good is to come out of this painful episode, perhaps it will lead to a more realistic and balanced assessment of the relative merits of open-ended and closed-ended structures. That can only be good for advisers’ clients, who would surely benefit from being offered the best investment opportunities regardless of fund structure.
Nick Britton is head of intermediary communications at the Association of Investment Companies