I recently chaired a webcast on investment trusts at which two analysts and an investment manager gave their thoughts on the outlook for closed-ended funds.
2011 has not proved an easy year for the investment trust industry but the inherent advantages of closed-ended funds – lower management charges, better access to illiquid asset classes and generally superior long-term performance – can help people clamber aboard.
This is more difficult to achieve when comparable trusts are standing at double-digit discounts to asset value. Discounts have generally held up well but it is possible to buy a number of respectable trusts at around 90 per cent of their true asset value.
The aim of the series of webcasts has been to encourage advisers to add these trusts to their portfolio of investment options. The argument is simple. After the RDR, the absence of commission, plus the requirement to source whole of market, will demand considering investment trusts for clients.
I still have doubts as to the extent that advisers will take up this challenge. Years ago, I was involved in an initiative from the Association of Investment Trust Companies to promote closed-ended funds among the adviser community. The results were mixed, to be polite. One of the comments made during this period was the wealth manager for which I was working at the time probably owned more investment trusts by value than the entire adviser community. I suspect that was true. Still, it begged the question that perhaps those with access to these particular funds had an advantage over advisers limited to open-ended vehicles.
Today, the playing field has been levelled somewhat by platforms, although many of these are still unable to accommodate quoted entities, like investment trusts – or even exchange traded funds, which are gaining increasing traction in the adviser market.
The reality is that the investment trust industry, dismissed by one senior industry figure as being locked in the past and irrelevant not very long ago, has been transformed in recent years. The advantages built in to this structure, such as the ability to cope with investments like property and private equity which do not enjoy easy access, have been complemented by a more proactive approach by boards and recognition that better understanding of their qualities needs to be generated. My hope is that advisers will take the trouble to improve their knowledge of this sector. At least the industry is making an effort.
Brian Tora is an associate with investment managers JM Finn & Co