Ratings roll-out for investment trusts

Morningstar’s new investment trust rating system will help advisers post-RDR, giving them up to date details on the fund holdings.

The rating system, which ranks the funds as gold, silver, bronze, neutral or negative, requires more regular updating of fund holdings. While most funds already disclose these details once a year, the new rating system requires them to ideally provide information quarterly.

Jackie Beard, director of closed end fund research at Morningstar, said, “In times of financial upheaval, the IFAs will have clients on the phone all the time trying to establish what exactly they have invested in. Disclosing holdings once a year is not enough.”

She added that some houses have been more receptive to the new system than others.

The initial roll out covers just 32 funds, which were compiled from a list of the largest in each Association of Investment Companies sector, with an eye to which funds would supply a regular flow of information.

However, this is just a starting point, Beard said, adding, “We have a wish list of the next 70 funds to investigate and 13 fund reviews are already being prepared.”

The feedback so far has been good, Morningstar said. Stephen Westwood, a consultant to two investment trust companies, said, “This initiative helps to bring all the different funds to a level playing field. With the RDR coming, any properly researched information from an independent source has got to be very welcome.”

Dennis Hall, founder of Yellowtail Financial Planning, said, “At the moment an awful lot of advisers don’t use investment trusts. If this is going to change they need to understand what the ratings are doing.”

He expects that more IFAs will turn to investment funds with the introduction of the RDR next year.

Beard is adamant that to succeed this initiative needs the support of the industry. “The IFAs need to embrace this and help us help them,” she said.

The aspects looked at the decide on the rating are: the people involved; the investing process; the parent company; the performance of the trust and the fees involved. Also the historical discount or premium of an investment trust is considered along with the level of gearing.

anne-louise.petersen@ft.com