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Unicorn shuns new ‘top of the market’ trusts

The manager of the Unicorn mastertrust fund of investment trusts says he tends to avoid holding new investment trusts because they often signal the top of the market.

Fund manager Peter Walls says new investment trusts can only raise enough money when an asset class is hot and that is usually when it has already gone up. He prefers to invest in existing investment trusts, including those that are issuing new shares for which there is great demand. These can often trade at a premium to net asset value.

He says the spotlight is often on the reasons why trusts should become more mainstream as a result of the RDR, particularly as their costs are lower relative to Oeics, but he says any cost and potential performance advantage the investment trust may have will be diluted by the RDR due to the introduction of clean share classes on open-ended funds, which will not have IFA commission payments built in.

Walls is also concerned about how advisers will fare when faced with some of the complexities of investment trusts, such as what to do when a trust announces a tender offer or reverse tender offer. He believes a fund of investment trusts run by a specialist manager who understands the investment trust industry could provide a solution for IFAs who want more than an overly cautious Oeic. Walls says: “Oeics seem to be over-diversified. Risk and return are bedfellows and too often the temptation is to top slice and cut back risk. I am not saying they should be holding a dozen stocks but I think they are far too risk-averse.”

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