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You can always rely on Peter Hargreaves to get one or two backs up. From fund managers promoting commercial property unit trusts to financial advisers recommending structured products, he has always managed to spark a debate with his opinionated views.

His latest comments have irritated the investment trust industry. Hargreaves, who has made his fortune from selling unit trusts, reckons the investment industry is full of “fuddy-duddies” and that many boards are not independent.

“I should know, I used to be on one or two,” he says.

There is little doubt that the independence of boards used to be questioned, but I can understand why many who work in the investment trust industry feel aggrieved by his latest comments.

The industry has tried to rid itself of its clubby and cosy image ever since the split capital scandal and its so-called “magic circle”. New rules on corporate governance have led to better governance and listing rules.

ccording to the Association of Investment Companies, 14 boards have changed the manager of their investment firm in the past three years. It is not as if most unit trust managers cover themselves in glory either.

So incensed was one investment trust analyst, he took to his spreadsheets to prove to Mr Hargreaves that investment trusts are not the laggards he suggests.

The research, by Alan Brierley at Collins Stewart, showed that investment trusts have delivered superior performance over the past 10 years. In almost all the mainstream regional sectors, investment trusts have comfortably outperformed open-ended rivals – and this data excludes the impact of higher costs of dealing in open-ended funds.

But despite the performance and the top-notch PR team at the AIC, investment trusts still fail to attract the masses and the amount of money they attract pales into insignificance compared with open-ended funds.

Yet the merits of investment trusts are well known – they are cheap and are better suited to illiquid assets than unit trusts, as Anthony Bolton will happily testify. Liquidity is a main reason why his new China fund is a closed-end vehicle (this year’s biggest Isa season winner stands a good chance of being an investment trust, thanks to Bolton).

One of the reasons frequently touted as to why investment trusts lag unit trusts in terms of sales is commission. Unit trusts pay it, investment trusts don’t. That is will soon change now that the FSA has confirmed that commission will be no more come 2012.

Just like the exchange-traded fund industry, ’investment trusters’ are relishing the opportunity to compete on a level playing field with the mutual fund industry. With commission out of the equation there is no need for product bias based on financial incentives.

“At last, investment companies will be on a level playing field with unit trusts and we have already seen the influential adviser platforms take an increased interest in making investment companies available, with Cofunds including them on their platform next year,” says AIC director general Ian Sayers.

For all the AIC’s optimism, I cannot see the sales gap narrowing by any great extent any day soon – it has gone too far for that to happen. The unit trust players have huge market share, the clout and, importantly, greater consumer appeal.

But the sales gap should start to shrink to some extent. Investment trusts have proved their mettle before and continue to do so. Yet if advisers fail to bring them into the equation then clients are not being given a fair crack of the whip, something that should not go unnoticed by the FSA.

Besides, if an investment trust is good enough for Bolton…

Paul Farrow is personal finance editor at the Telegraph Media GroupMoney Marketing

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There is one comment at the moment, we would love to hear your opinion too.

  1. Go on Mr Farrow, pile into investments trusts, put all your spare cash in them, I dare you.

    To some of us mere mortals they are more of a gamble than unit trusts but not as risky as a hedge fund which will also be highly geared.

    Commission has nothing to do with it whatsoever Mr Farrow, if you listen to all the ‘New Model Advisers’ you might think they were writing new business hand over fist and if they were keen on investment trusts they would be charging a fee for recommending them.

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