Changing perceptions to boost performance

The past 11 months since the retail distribution review came into force have seen many changes in the way that investment products are distributed.

Advisers are turning more towards platforms and discretionary managed services, and with no more commission payable from providers to intermediaries, products such as investment trusts are becoming more interesting to advisers as they seek out performance for their clients.

This was the message from Financial Adviser’s breakfast seminar, held in Nottingham’s historic cricket ground Trent Bridge and sponsored by asset management firm Smith &Williamson and wrap platform Novia. The subjects under discussion were outsourcing investment management via a platform, and the use of investment trusts in a managed portfolio service.

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After a brief introduction, Mickey Morrissey, partner and head of IFA sales for Smith & Williamson, told the packed audience of financial advisers about the heritage of Smith & Williamson – its founding in 1881 and its history of creating investment funds – and that the firm had recently been turning its attention to the advisory marketplace. “This is an area we want to serve,” he said.

Turning to the question of why Smith & Williamson uses investment trusts and exchange-traded funds within their portfolios, he said that while investment trust companies are the oldest form of collective investment funds in the UK, they appear to be the least understood. And this is despite strong performance and some strong fund managers running them.

“There are so many big-name managers running investment trusts, and you can see that their performance outstrips that of their existing unit trust funds,” said Mr Morrissey.

He cited the example of Invesco Perpetual’s fixed-income duo Paul Causer and Paul Read, whose investment trust version has overperformed, as well as Aberdeen’s Hugh Young.

Mr Morrissey acknowledged that there are some risks, such as the discount spread moving against investors and making it harder to sell or more expensive to buy, as well as gearing – which some advisers afterwards questioned as being a big risk, as borrowing for growth can turn against the investor and cause the investment trust to fall further if there is a downturn. However, Mr Morrissey said that if investors had invested in Hugh Young’s New Dawn trust fund instead of his open-ended Asia-Pacific Unit Trust, they would have received a 113 per cent better return over the period that both have been available.

In his presentation, he told delegates that the investment trust company sector has net assets of £103bn, with a market capitalisation in total of £93bn, making it a “stable and established” investment class, with independent and active boards of directors overseeing them. Mr Morrissey explained that this was why Smith & Williamson spends so much time researching them and putting them into discretionary managed portfolios.

In fact, a range of portfolios has just gone live on the Novia platform, which aim to give advisers the use of investment trusts and the expertise of Smith & Williamson, without the IFA having to conduct all the investigatory due diligence on individual investment trusts themselves.