A golden era for investment trusts

Along with the new pensions freedoms, this has helped raise the profile of investment trusts as an attractive option for people wanting to achieve greater control over their retirement savings.

Notwithstanding the fact that the RDR has helped to encourage a more level playing field between closed- and open-ended funds, several popular myths about investment trusts still endure, even though the FCA now stipulates that whole-of-market advisers must consider investment trusts alongside open-ended funds when selecting investments for their clients.

Advisers who do not give full consideration to investment trusts risk breaching the requirements to remain independent and are also doing their clients a disservice. Clearly there remains an industry need for better access and education about investment trusts.

That’s not to say that the greater engagement of advisers with closed-ended funds hasn’t been encouraging, as they are increasingly incorporated into client recommendations and portfolios. There’s just still some way to go. With the various forces at play, however, it would not be an exaggeration to suggest that the next few years could be a golden era for investment trusts.

There have been areas of significant growth in private client wealth management, which is benefiting from the increasing trend for many retail financial advisers to outsource some, if not all, of their clients’ investment management to third parties. These private client wealth managers have seen record growth in assets under management and have historically been some of the most important users of investment trusts.

There are also an increasing number of advisers seeking to (re)structure their businesses along the lines of a traditional private wealth management model, recognising that they too may be able to win contracts from other retail advisers who are outsourcing work.

We as an industry are starting to see more discretionary advisers realising the benefits of investment trusts for their clients. Investment trust uptake by self-directed investors is another growing trend, as demonstrated by the success of consumer-facing platforms such as Hargreaves Lansdown. And it can be foreseen that other entrants will come to the market over time, to satisfy the growing demand from consumers.

Early indications suggest the RDR reforms are having some impact, as evidenced by the Association of Investment Companies’ report in December. It showed that purchases of investment trusts on platforms increased 31 per cent in the 12 months ended September 2014 compared with the same period the previous year.

Clearly, changing regulation has been supportive of the sector, but strong performance and a unique set of structural characteristics has also contributed to their relative popularity. This is an important time for the sector and fund providers need to have the right infrastructure in place to ensure they are operating effectively and engaging with clients in a meaningful way.

Simon Crinage is head of investment trusts at JPMorgan Asset Management

EXPERT VIEW

Ian Sayers, chief executive of the AIC, says:

“In the wake of the FCA’s final post-RDR thematic review, it is very positive to hear that the RDR is working as intended. We’re encouraged to see that purchases of investment companies on platforms continue to increase year on year, and that purchases have more than doubled since the implementation of the RDR.”

TRUSTS: PLATFORMS

£441.2m

Purchases of investment trusts on platforms in the 12 months to September 2014, up 31% on the 12 months to September 2013

£110.4m

Amount of platform purchases of investment trusts reached in the third quarter of 2014, up 14% on the same period a year earlier