The director general of the Association of Investment Companies has bemoaned the fact that a number of financial advisers are not offering investment companies to their clients, despite seeing the benefits and using them in their own portfolios.
In a blog Ian Sayers writes that he has met advisers over the last six months who have admitted that they hold investment companies in their own portfolios, but do not recommend them to their clients.
“It’s hard to believe that all their clients have financial goals and risk profiles so different to their own,” he complains.
He adds that while the AIC “strongly supports” people taking independent advice, “if the proof of the pudding is in the eating, I can’t help thinking that clients deserve at least a taste of what investment companies have to offer”.
The remarks come after FTAdviser reported doubts over the extent of adviser and wealth manager purchases of investment trusts, despite evidence of strong performance relative to open-ended peers, due to incomplete access on platforms and misgivings over liquidity and gearing.
Mr Sayers refers to Canaccord Genuity’s latest quarterly research for the AIC to emphasise the favourable performance of trusts. It shows that investment companies outperformed comparable open-ended funds in 12 out of 15 sectors over ten years, 14 out of 15 sectors over five years, and 11 out of 15 sectors over one year.
“One of the immediate reactions we get to this research from advisers is that, being historic performance, it doesn’t reflect the new ‘clean’ share classes and lower costs that open-ended funds are offering post-RDR.”
But Mr Sawyers argues that this misses the point that the amount of outperformance cannot be explained just by historic cost advantages, and that investment company costs are not static”.
He notes: “We have seen many independent boards renegotiating their fees in response to RDR, by lowering fees, introducing tiered rates and scrapping performance fees.”
At a recent AIC panel debate, members admitted that while investment companies tend to outperform over the longer-term, investors may well experience a bumpier ride along the way, due to the impact of gearing and changes to discounts and premiums.
Alan Brierley, head of research at Canaccord Genuity, suggested that it was best to buy and hold for the long-term. “The message when choosing an investment should not be whether it is trading on a 5 per cent discount or a 7 per cent discount, discounts should not be a key driver: [investors] should identify quality and put it in the bottom drawer.”
Meanwhile, on the issue of fees, Simon Elliott, head of research at Winterflood Securities, commented that investment company boards have been sitting down with managers and pushing them to lower costs.
“Since the start of 2013, 20 per cent of the investment company universe has seen a change to their management fee arrangements.”
peter.walker@ft.com
