Equities  

Adviser hits out after spate of soft closures

David Thomson, chief investment officer for VWM Wealth, claimed a recent spate of soft closures at Standard Life, Fidelity and other investment houses had caused significant disruption for his firm.

He said the funds should be allowed to grow naturally in time due to investor interest.

Mr Thomson added: “We try to invest in good quality funds which subsequently attract a lot of money.

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“This gives us an issue where we are running model portfolios because a closed fund cannot really be treated as a hold and therefore must become a sell. Otherwise we end up tracking multiple portfolios.

“There can be a lot of disruption both for us and the fund groups because of the funds’ flow as a consequence.”

Mr Thomson said that it was “crazy” for investors to “scramble in” before the closing date as he believed that it could be a sign that the fund manager was struggling.

He added: “Perhaps it is even a marketing ploy to get more money in, particularly if the fund subsequently reopens. It may just be sensible fund size management as fund groups will be keen to preserve their performance.”

Mr Thomson said there should be a “back door way” into the funds through platforms, adding: “Some wraps might have been able to negotiate terms to retain access to funds that are soft closed.”

Background:
A number of investment houses have taken steps to stem inflows into funds. Funds that have soft closed this year include Standard Life’s UK Smaller Companies, Fidelity UK Smaller Companies, Aberdeen Emerging Markets and First State Global Emerging Markets. The method involves raising upfront charges or minimum investment requirements to such a level that it would deter prospective investors.

Tony Byrne, director of Buckinghamshire-based Wealth and Tax Planning, said: “One issue is that there are fewer opportunities to make very good returns when a fund becomes too big. Small funds can be more nimble, moving in and out of investments as necessary.”