Hargreaves Lansdown is sceptical about the “RDR effect” prompting advisers to put client money directly into investment trusts, following record highs of investment trusts purchases.
Yesterday the Association of Investment Companies reported purchases of investment trusts in the second quarter of 2014 reached a record high of £120.9m, compared with £93.7m in the same period a year previously.
Laith Khalaf, senior analyst of Hargreaves Lansdown, admitted that investment trusts are “flavour of the day” with a swelling group of DIY investors, adding that over the last five years Hargreaves has seen a doubling in the proportion of investors holding an investment trust on its Vantage platform.
He said: “Some of this is down to the increase in online information available to DIY investors, some of it down to the attention drawn to the sector by the involvement of high profile managers like Neil Woodford and Richard Buxton.
“Advisory platforms appear to be attracting high levels of investment trust purchases too, but we are sceptical about the ‘RDR effect’ prompting advisers to put client money directly into investment trusts.”
Mr Khalaf added that he strongly suspects that wealth managers are investing within discretionary portfolios on behalf of advisers. “Nonetheless the effect is the same - more advisory clients are now holding these assets.
“Investment trusts are a useful tool in an investors’ armoury. In particular the reserving mechanism which allows dividends to be held back in good years to pay out in bad years will appeal to investors looking for a smooth income.
However he warned that the dual pricing and gearing of investment trusts can make them more volatile than their open-ended cousins. “In a downturn investors need to be willing to see their investment fall by more than the market, as discounts widen and gearing kicks in.”
