Investment trusts (ITs) have been off the radar for a lot of advisers for many years because of the structure of commission. It has only been since the RDR that ITs have become a more realistic option for them.
The knowledge level is definitely increasing. For many advisers, ITs are less attractive because they think they seem to be illiquid and more complex and therefore slightly higher risk than an equivalent open-ended fund.
Over time, IFAs will increasingly invest in ITs but it’ll be a slow burn. It will take some time to understand the different types of trusts out there and the different risk parameters associated with them and then they will be able to make informed decisions.
For the man on the street, the vast majority haven’t a clue what an IT is. But anyone who takes a remote interest in investment comes across them very quickly and becomes converted to them.
The informed man in the street – the ‘hobbyist’ investor – has always been a fan. I don’t think that has changed and it will continue.
Investors are finding ITs themselves and making decisions. It is encouraging.
For those people to buy and hold for the medium- to long-term – which is five years plus – ITs are perfectly liquid. It may take time for a broker to do it, but for the man on the street buying through platforms, there is enough liquidity in most of the mainstream trusts.
I have long been griping that the three major fund platforms – Cofunds, Fidelity FundsNetwork and Skandia – don’t offer ITs. So from an IFA point of view, they aren’t available enough.
That said, all the wrap platforms do offer access, for example, Transact and Novia have been doing it for a long time. IFAs are prepared to spread their wings beyond the three major platforms.
There’s no reason why anybody can’t get at ITs. Share dealing services are now doing a great job at making them accessible, such as Halifax Share Dealing accounts.
Gearing shouldn’t be a problem. It’s one of the characteristics of trusts.
The problem with gearing is it is a double-edged sword. It enhances returns on the way up and it clearly enhances losses on the way down.
Careful management of gearing will enhance returns for shareholders. It’s used in some ITs to enhance income as well, so it’s an important and interesting tool and can be very rewarding.
The average age of an IT investor is in their 60s, but we do get some in their 20s and 30s. And more so now since the advent of the internet – young people use it in a more efficient way to find out about options than they did in the old days.
The industry as a whole over the past 10 to 15 years has changed in one significant way. More than 90 per cent of new issues in the sector have been in the alternatives space.
Share dealing services don’t make it easy to vote at AGMs unless it’s something special. I would like to see a situation where the services are – as a minimum online – offering an online voting arrangement.
I’d like to see private investors encouraged more to exercise democratic rights and for that to be provided for cost-effectively. It’s not happening and maybe it’s a change the regulator should consider.
When I was young, I wanted to play centre-forward for West Ham. I remember I got kicked off the school team for not being able to see. That’s when I realised I had to study and come up with a different career.
I’m a keen city person so I’m in a couple of livery companies and ward clubs. You have to give something back in life and I’m a churchman so I’m on the council of St Paul’s Cathedral, and the investment strategy for Diocese of London.
