Fund of investment trusts manager Unicorn Asset Management says it does not think investment trusts will increase their market share following the retail distribution review.
The company, which runs the Mastertrust Oeic fund of investment trusts, says investment trusts have a lot to commend them after the RDR, such as low cost, meaning performance that can be enhanced through gearing is not eroded by charges. They also have independent boards of directors that can act if the trust gets into trouble.
The company sees the sector as self-regulatory, in that if a trust underperforms, action will be taken to address this, by winding up or restructuring the trust. This is in contrast with open-ended funds, which are left to limp on regardless of underperformance.
But despite the features of investment trusts, Unicorn does not predict they will increase their market share after the RDR due to the drawbacks of the structure.
It says gearing is a doubled-edged sword as it exaggerates falls in down markets and creates volatility. Volatility of the discount to net asset value is something people do not like and Unicorn feels that investors do not understand it. Insufficient liquidity can also be a problem for some trusts.
Unicorn director and master-trust fund manager Peter Walls says: “Sadly, too many people are blinkered into looking at open-ended funds. Will IFAs start to embrace investment trusts after the RDR? I do not think they will.”