View more on these topics

Will investment trusts win over advisers?

The businessman stood on the road sign and watched the telescopeDespite offering higher average returns than open-ended funds, advisers are continuing to shy away from investment trusts.

Recent research by the Cass Business School suggests that the alpha generated by investment trust managers was higher than that by managers of unit trusts on average.

Even taking into account factors such as gearing and share buybacks, the performance difference between investment trusts and unit trusts averaged around 0.8 per cent per annum over any one year. So is it time advisers started to consider upping their investment trust exposure?

The Association of Investment Companies chief executive Ian Sayers says the main benefits they offer to advisers are performance over open-ended funds and the wide range of assets they invest in.

He says: “Investment trusts can help clients maximise returns and achieve their financial objectives, but it is important for advisers to consider the risks. Investment trusts can also invest in anything, whereas a lot of open-ended fund have to buy listed shares and securities. This includes asset classes that are not liquid and good for income, like infrastructure.”

Fears over investment trust sales as new disclosure hikes costs

Last year, purchases of investment trusts by advisers and wealth managers on adviser platforms reached a record £990m. This was up 46 per cent on 2016 (£679m) and 41 per cent from 2015, when it reached its previous high of £704m.

The most popular individual sectors in 2017 were Global, Property Direct UK and UK Equity Income.

Sayers says: “Advisers have to make sure they have the right proportions when choosing sectors.

“You can’t tell people to stick 50 per cent in private equity as it would be a very scary ride indeed.”

He adds: “On a sectoral basis it is about building up the portfolio so it matches the customer’s objectives and risk profile. Some investment trusts are longer-term products, so we always say you must prepared to hold for at least five years.”

Platforms push forward

Even up until a few years ago, the majority of platforms did not offer investment trusts, but now Cofunds and Old Mutual Wealth are the only two which do not offer closed-ended funds – although this is set to change once re-platforming is complete on both this year.

Charges differ across the board but platforms generally charge on a percentage-basis.

For example, the charges for a £250,000 portfolio in an investment trust range from 0.2 per cent of client assets on AJ Bell Investcentre to 0.5 per cent on Novia.

Alliance Trust Savings, FundsNetwork, Praemium and True Potential all offer fixed fees while others offer a percentage-based fee dependant on fund value.

Building a portfolio is not telling people to stick 50 per cent in private equity; that would be a scary ride

Ascentric and Seven IM have no additional trading charges at all, while the charging model for Alliance Trust Savings is the same irrespective of fund or non-fund investment.

The Lang Cat head of research Steve Nelson says these platforms are the most cost-effective for advisers as there is a degree of certainty what the charges will be.

He says: “Many advisers we speak to say platform choice is driven by a need to rationalise and simplify the charges that their clients would incur.

“It is no surprise that investment company usage is higher on platforms which take an asset-neutral approach such as Alliance Trust Savings, AJ Bell, Ascentric and Seven IM. The flip side of this is that there are several adviser platforms where investment company trading charges can be eye-watering.”

He points to gearing as a major issue for advisers: “The fact that investment trusts allow gearing is a concern to many advisers we speak to, especially around clients with a cautious to balanced attitude to risk.

“Ease of use is a constant theme if you think of how the platform market is set up. You could argue that it simply caters more for open-ended funds, when you consider integrations around fund performance or risk profiling.”

Take off

While adviser purchases of investment companies on platforms is at an all-time high, many advisers still regard them as a niche product.

Sayers says that one the main reasons advisers are not recommending them to clients is because they are not familiar with investment trusts.

He says: “A lot of advisers have not used investment trusts before, which can be daunting. It can take time to get people into a position where they feel really confident to press the button and recommend them.

Warning over misleading Priips document for investment trusts

“When advisers do, they are often surprised how easy it is to deal with them. We are not expecting the floodgates to open as legacy and inertia are very powerful forces. The sector will continue to steadily build, but I do not think it will suddenly explode.”

AJ Bell Investments head of active portfolios Ryan Hughes says: “Investment trusts will always be in the shadow of the Oeic structure which is far easier to trade in.

“Some advisers are put off by gearing and discounts. We are seeing signs of an increase in popularity but, because of their complexity, investment trusts will always be more challenging for some advisers to use.

“Platforms could definitely do more to promote investment trusts, as could the whole industry.”



Fears over investment trust sales as new disclosure hikes costs

Investment trust sales may come under pressure due to new EU rules, experts have warned. The potential benefits of gearing on investment trusts risk being overlooked as new cost reporting rules make them look more expensive compared with open-ended funds. Traditionally, closed-ended funds have looked attractive based on lower costs compared with other structures, as […]

Aberdeen Standard taps into e-commerce with investment trust

A new investment trust from Aberdeen Standard Investments will invest in warehouses and distribution centres to tap into the growth of e-commerce and online retailing. The Aberdeen Standard European Logistics Income investment trust will aim for a 5.5 per cent yield and total return of 7.5 per cent annually. Evert Castelein will manage the investment trust from […]


Natixis Global Asset Management’s quarterly Portfolio Barometer offers insights into UK financial advisers’ model portfolios and the allocation decisions they are making. Natixis’s Portfolio Research & Consulting Group works with financial advisers and other intermediaries to analyse and enhance their model portfolios and help them develop investor portfolios suited to today’s complex markets. The Portfolio […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm