Winterflood: Net buyers of trusts expected to drop to decade lows

Consolidation and cost disclosure concerns to remain key topics over the coming year

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Net buyers of investment trusts are expected to fall to record lows in 2024, according to Winterflood research.

Winterflood’s 2024 industry survey found that 63% of respondents anticipated being net buyers, a fall from 72% in 2023. This formed the lowest percentage of net buyers since the annual survey began in 2012.

The research was formed of responses from 80 participants, of which 49% described themselves as wealth managers, 21% as investment trust directors and 6% institutional investors. The remainder included IFAs, investment managers and journalists.

The report’s author, head of investment trust research Emma Bird, said: “A number of individuals that were net sellers in 2023 expected to continue to be so this year, for example ‘due to discounts’ or ‘unless there is an improvement in performance and liquidity’.

“One wealth manager is ‘less likely to own generic equity investment trusts, but will continue to buy for illiquid underlying asset classes’, while an investment trust director commented: ‘The UK equity sector remains unloved and unless and until the attempts by the IA and others to re-energise it works, I anticipate continuing to see net selling of such assets’.”

Meanwhile, investors are increasingly turning towards larger trusts, with the proportion of surveyed clients willing to invest in funds with market caps of less than £200m falling from 99% in 2013 to 62% this year.

Respondents raised concerns over liquidity, with only 5% thinking that liquidity had improved in recent years versus 24% in 2023.

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Cost disclosure

The industry was split on the impact of cost disclosure regulations, Winterflood found.

Winterflood asked the following question for the first time in 2023 in light of regulatory developments: “Generally speaking, how prohibitive are costs when assessing whether to invest in an investment trust? Do you expect upcoming FCA remedial action on cost disclosure rules to impact your investment decisions?”

Responding to this, 51% said costs were either ‘not very’ or ‘not at all’ prohibitive when assessing whether to invest in a trust. Only 13% said it was ‘very’ prohibitive, up from 6% a year ago.

Furthermore, opinions were finely balanced on whether FCA action on cost disclosure rules would impact their investment decisions, with 48% responding ‘yes’ and 52% saying no.

Bird added: “Despite this reasonably balanced result suggesting that costs may not be as much of an issue as we thought, this question prompted a significant number of comments, implying that it is a key area of focus.”

Some 64% of respondents believe that more investment trusts should actively pursue consolidation, up from 45% last year. Among the reasons given, many argued that the sector contains too many small, illiquid funds.

Elsewhere, the research highlighted a continued use of investment trusts for the purpose of accessing illiquid asset classes, as well as a recognition of the wider benefits of the closed-ended fund structure.

There was also a decline in the proportion of individuals who saw ‘considerable’ benefit from independent boards. However, no respondents saw zero benefit.

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