Open and shut case
The webcast, to which I referred in last week’s musings on the investment scene, was interesting for a variety of reasons. It is now nearly a year since I started moderating these discussions aimed at educating the adviser community on closed-ended funds in preparation for the RDR. Questions flowed in thick and fast, many on the comparison between investment trusts and open-ended vehicles.
I have expressed my appreciation of the investment trust movement before. I have been a director of an investment trust in the past but have also served on the board of a unit trust manager and been involved in running open-ended funds. In other words, both have their place in the portfolio planning and comparisons in many cases can be odious.
This was precisely the point made by the analysts present at our discussion. There may be quite legitimate instances when meaningful comparisons can be made but all too often it would be a case of putting apples alongside pears.
Gearing, capital structures, fixed winding-up dates all could and often do make a comparison with an equivalent open-ended fund of little value. And that is without going into the business of diverse asset classes.
In the end, the most testing aspects of how to encompass a wider range of investment options from the perspective of a traditional IFA seems to come down to access to relevant information and transactional and portfolio maintenance capability.
In other words, is there sufficient research available to allow an adviser to make an adequate judgement on the suitability of an investment trust and how best to deal and retain the investment? Not easy questions to answer.
The fact remains that platforms are accumulating an increasing percentage of the assets of advisers’ clients, yet few offer the facility to trade and hold quoted securities like investment trusts.
True, Cofunds recently announced a link with Barclays Stockbrokers but at this early stage it is not clear whether there can be a seamless reporting structure that will allow all investments to be consolidated into a single document.
As for research and other information, there are certainly indications that the investment trust management groups are improving the flow of data and manager updates, primarily through their websites.
Many of the big investment trust management groups also run open-ended funds, so the experience is available to them. And research houses, too, such as JP Morgan Cazenove, Numis and Winterflood - participants in this latest webcast - are also conscious of the new market opening up.
That certain asset classes are better suited to a closed-ended structure is undeniable. Property, private equity and infrastructure all look to be the type of long-term and often illiquid asset that might find providing ready access to redemption facilities a trial.
Even so, I wonder quite how positive a take-up of closed-ended funds will be after the RDR. If such an option brings with it problems, I suspect many advisers will shy away.
The advice of those present around the table last week was sound, in my view. Investment trusts are not necessarily a straightforward alternative to a unit trust or Oeic. They enjoy certain advantages - usually lower total expense ratios and the ability to purchase at a discount.
For some asset classes they should be the vehicle of choice. But there are also disadvantages, not least the fact that a whole new level of understanding will be needed. It will be interesting to see how they are taken up after the RDR.
Brian Tora is an associate with investment managers JM Finn & Co