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Closed run thing

By the time you read this, I will have attended my first Association of Investment Companies roadshow of 2007. Or at least, I hope I will have done. Writing this, I am only too aware that our weather forecasters are expecting the arrival of winter this week.

It would be ironic if snow and ice prevented me from reaching Birmingham to help launch this year’s season.

Sometimes I feel as though I am stuck in a groove when it comes to investment trusts, with the same old mantra being repeated over and over again. The theory remains unchallenged, in my view. A close-ended structure lends itself to better performance through cheaper charges and the ability to control funds under management as opposed to having to cope with flows in and out. However keen I remain, I have to recognise that, at adviser level, the reality is very different.

The need to recategorise those trusts able to gear their portfolios certainly caused problems for some managers of private client portfolios. Liquidity, too, can be difficult from time to time although much has already been done in this area. There is also the problem, more perceived than real in my view, that the absence of front-end commission militates against trusts. The fact remains that investment trusts need private investors to take up the running as institutional investors progressively withdraw from this market.

This was certainly the view of James de Sausmerez, head of investment trusts at Henderson, when we chewed the fat last week. James was remarkably up-beat on investment trusts and their future in his organisation, as indeed he has every right to be. Why, then, do I harbour mild feelings of disquiet at present?

In part, it is a consequence of the growth in popularity of multi-manager among investors and their advisers. Aside from presenting a serious alternative to the international generalist trust, some of the big wealth managers are moving from the traditional investment trusts held in clients’ portfolios to the more sophisticated components in some of the multi-manager offerings they themselves have constructed. Of course, there is a growing array of products seizing the attention of investors that can be considered alternatives to both unit trusts and investment trusts.

How does performance stack up? In 2005, it was 40-love to the investment trust community. Last year was altogether a little trickier. Not that there were any particular problems for trust managers in 2006, it is just that the previous year saw discounts narrow progressively, giving a boost to share price performance. If anything, discounts have widened modestly although hopefully this represents no more than a pause in what has proved a valuable rerating for the sector.

But the headline figures trail open-ended funds on this occasion, even if results in aggregate do not stack up too badly. According to the AIC’s latest figures, the average close-ended investment company rose by 11 per cent in 2006 – hardly shooting the lights out but not unreasonable given the wide range of trusts available. TR property, which rose by more than 50 per cent, was the best performing conventional trust. Just to confirm that the results from investment trusts mirror open-ended funds to some extent, JP Morgan Russian securities is the top performing AIC member over both five and 10 years, rising by 463 per cent and 931 per cent respectively.

Should I read too much into one year’s statistics? Probably not, but it did make me realise that the appetite for investment trusts could be damaged if discounts widen again. Personally, I feel just a little miffed that I did not move more heavily into investment trusts three years ago when I first considered shifting the emphasis away from direct investment in equities. The easy money has now been made.

Brian Tora ( is principal of the Tora Partnership.


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