Fidelity FundsNetwork has shelved plans to list investment trusts on the platform, in a major blow for the closed-end fund industry.
David White, former head of the platform, told Investment Adviser in April last year that 2012 would be a “year of delivery” that would see it hosting exchange-traded funds and investment trusts.
But last week Klare Baldwin, head of FundsNetwork marketing, told Investment Adviser that trusts were still not being included and plans to offer them were on hold. She cited a lack of demand and priorities in other areas.
“Investment trusts do not fit into our current delivery roadmap,” Ms Baldwin said.
“Against the backdrop of regulatory changes, we were not able to achieve that. We are in the process of looking at plans for this year, but we have no date for investment trusts.”
Ian Sayers, director-general of the Association of Investment Companies, the closed-end industry trade body, told delegates at an FT Intermediary Forum last April that the investment trust industry “needs to be” on the ‘big three’ platforms – Fidelity FundsNetwork, Cofunds and Skandia.
He said all three had plans to host investment trusts, but he warned that the biggest platforms would likely focus on the largest, most liquid trusts initially.
FundsNetwork’s Ms Baldwin added that the platform’s focus is currently on implementing the FSA’s RDR requirements – namely a ban on rebate-type price structures, which comes into force at the end of the year.
She said the platform was also focusing on introducing new products, such as a recent pension launch. The platform is seeing “a lot more demand from advisers” for that category of product over investment trusts, she said.
Elsewhere, Ms Baldwin said that Fidelity FundsNetwork now had 364 ‘clean fee’ share classes – free from any rebates – listed, and expected more to be added every month. She predicted another 300 would be included by the end of the first quarter of this year.
However, Ms Baldwin added there had not yet been a “massive shift” across to clean-fee share classes.
“If we move forward six to eight weeks, we might see some meaningful starts but it is not a trend we are seeing at the moment,” she said.
Analysis: Blow for trusts but other changes afoot
Hopes were high in the investment trust industry for a boost in interest under the FSA’s RDR clampdown, which came into force for advisers at the end of 2012.
Proponents of the industry hoped that the RDR’s ban on fund commission would put the trusts - which do not tend to pay commission - on a level playing field with open-ended mutual funds that do tend to pay commission.
It was also hoped that the RDR requirement of financial advisers to consider the whole of the investment market before making product recommendations to clients would throw light on the closed-end industry.
But in order for investment trusts to benefit from this increase in interest they had to be readily available to adviser clients - and the only way to ensure easy availability in retail investments is to be available on the major platforms.
However, there have been other shifts in the investment trust industry that should boost the funds’ popularity further.
Two investment trusts have recently adopted a zero discount policy in a bid to entice retail investment advisers to buy them. The move came after support was expressed by analysts in Investment Adviser about more trusts adopting such a policy.
Currently clients who buy into investment trusts run the risk of losing out if the shares fall in value relative to the trust’s portfolio of assets.
But trusts that adopt a zero discount policy pledge to use techniques such as buying up their own shares or issuing new shares to prevent their share prices from falling to a ‘discount’ to the value of their investment portfolios.
Analyst views
Simon Elliott, analyst, Winterflood
This is a disappointing development. The big three platforms, Cofunds, Skandia and Fundsnetwork are not really involved in investment trusts and they count for a huge percentage of fund flows. If people can’t access investment trusts easily there could be a significant headwind. I would be surprised if the platforms had ruled out promoting them entirely but it has to be demand driven.
Charles Cade, analyst, Numis Securities
The fact that the three major platforms are not promoting investment trusts is obviously a problem for advisers to recommend them. Hopefully they will start recommending the larger trusts at some point. There are plenty of ways for advisers to access investment trusts, although this [platform issue] is a barrier for them.
Iain Scouller, analyst, Oriel Securities
The trust industry wants to see more people able to promote the product so it’s disappointing, especially given the RDR. You would expect platforms to at least look at the bigger trusts - there are roughly 40 in the FTSE 350. But there is a lot of information provided by investment trust groups on the internet already, and they can be traded through retail brokers.
