InvestmentsSep 26 2013

MM Intelligence: The AIC response

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It is also reassuring, considering that we have trained more than 1,800 advisers in the past two years, that 78 per cent of the advisers surveyed are confident about advising on investment companies and 31 per cent of advisers are more confident about investment companies than this time last year.

It is even more heartening when we look at why advisers are using investment companies in their client portfolios. A third are using them because they believe investment companies are likely to deliver the best returns. It is clear that many have realised investment companies have a strong performance story to tell. Recent research of comparable investment company and open-ended sectors by Canaccord Genuity confirms this, with investment companies outperforming open-ended funds in 12 out of 16 sectors over 10 years. Also, nearly a quarter of advisers are using investment companies because they understand them better.

Although this research indicates we are heading in the right direction, there is still a lot more work to do if more advisers are going to feel sufficiently confident to recommend investment companies. There are 9 per cent of advisers who are not at all confident about investment companies and 14 per cent who are only slightly confident. This autumn, we are running four seminars around the country, using case studies to illustrate how to use investment companies in client portfolios. We are also running online training sessions, as well as presenting at the IFP and PFS conferences.

The biggest concern which advisers have about investment companies is gearing, with 64 per cent of advisers mentioning this as an issue. Most investment companies only gear to a moderate amount (the industry average is currently 8 per cent) and some investment companies do not gear at all. However, we’ve taken on board feedback to improve our gearing data. We now illustrate gearing as a simple percentage and provide data on our website which shows what the current level is, how the company has managed gearing in the past and how it can be managed in the future.

The second biggest concern was the availability of investment companies through platforms, with 55 per cent of advisers raising this. Investment companies are not yet on the three biggest platforms, but this is a marked contrast to most other platforms, which have operated on a wrap basis and have included investment companies. At the end of July, the FCA published its thematic review for advisers on the RDR with a strong message that advisers will find it difficult to remain independent if they only have access to one platform. It is clear, having talked to advisers at our training sessions, that they have access to more than one platform, to provide coverage of all the retail investment products their clients might need, including investment companies.

Liquidity was the third biggest concern cited by 53 per cent of advisers. Of course, liquidity depends on how much is being invested and the size of the investment company you are investing in. Most advisers who are dealing on behalf of their clients in small amounts will have little difficulty getting hold of stock.

Interestingly, the analyst Winterflood has recently looked at investment companies’ liquidity. There were 30 investment companies in 2013 which had average daily volumes of more than £1m and a further 36 with average daily volumes of more than £0.5m. Winterflood concluded that “the majority of investment companies offer reasonable liquidity and at the larger end of the market, we would argue that liquidity is good”.

If you would like to find out more about the AIC’s training and information on investment companies, go to theaic.co.uk/financial-advisers.

Find out more about adviser views on investment trusts in the MM Intelligence: Investment trusts report.