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Multi-Manager view – James Budden

It was with a sense of fatigue that I read the headline concerning Abbey shunning “too risky” investment trusts (Money Marketing, February 17).

Sure enough, the two issues of gearing and discount were cited as reasons for giving the industry the cold shoulder. This is a familiar refrain and one that ignores the fact that discount movement and the use of gearing can have an extremely positive influence on investment trust performance. The constant negativity attached to the discount and gearing is a by-product of the split-capital fiasco which continues to mask what is a successful industry.

In the article, Abbey’s John Kelly expands on his reasons for leaving out investment trusts from Abbey’s multi-manager range. While he is obviously free to exclude any fund he wishes, I found his thinking perplexing. The argument that Abbey would relinquish control over its portfolios by investing in an investment trust would apply to investment in any collective fund.

Also, his suggestion that prices and risk profiles are unknown is plain wrong. Close Wins, for example, does a good job risk-rating trusts. Share prices and net asset values are daily in the public domain while any multi-manager group has it in its grasp to risk-rate the underlying funds, given the amount of research available.

The best investment trusts are not hard to find. They have proven processes and longer track records than almost all open-ended funds. Furthermore, it seems the stockmarket is rather good at pointing out the winners as they tend to be on narrow discounts or premiums.

Whether the investment trust sector is past its sell-by date, as Kelly states, only time will tell. However, it has been around since 1868.

But it is pleasing to note that not everyone shares the Abbey habit. Gartmore gives hope that it will use investment trusts in the future while T Bailey and iimia have declared their support. They are right to do so as these vehicles make money for their shareholders.

It will be interesting to follow Abbey’s multi-managed equity Oeic. It has a similar objective to Witan’s multi-manager proposition but Abbey’s fund has a total expense ratio of 1.78 per cent. This is not unusual for openended multi-managed vehicles but does not compare favourably with Witan’s O.6 per cent. Price is a strong positive for investment trusts and it is worth stating the obvious, namely, that the Abbey fund and its like have to outperform Witan by 1.18 per cent just to keep up.

Investment trusts have had a bad press of late. There have been many knee-jerk headlines containing words such as beleaguered, dinosaur or embattled. These adjectives should be a thing of the past when investors consider the returns provided by trusts such as British Empire Securities and RIT Capital Partners, to name but two of the sector’s winners. The industry is undergoing a radical revitalisation which is good news for those investors who take the time to find out.

James Budden is marketing director of Witan investment trust


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