Wealth managers may dictate terms

The head of investment companies research at Numis Securities argued that the country’s largest wealth managers, lifted by higher in-flows post RDR, could dictate the terms for inclusion in model portfolios, putting pressure on investment trusts to ditch underperforming managers or deficient mandates.

Mr Cade added that the size and liquidity was “essential” criteria for private wealth managers and that the boards of ITs may not be looking out for the interests of shareholders if they do not consider merging.

Speaking at the Association of Investment Companies annual conference in London on 12 March, he said: “The likes of Brewin Dolphin and Investec are starting to insist on £200m funds under management, but that could increase to £300m before any of us know it.

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“To get on those model portfolios would be a huge bonus for investment trusts and clients, as it brings low charges and tighter spreads, and that benefits both sides of the deal.

“Mergers in the market should be possible given the opportunities out there, but boards are not giving these enough consideration.”

Mr Cade said that the super-wide discounts that prevailed in the 1970s would never return as investment trusts now have the ability to retain capital, with corporate action and arbitrage also playing their part in keeping discounts tight.

However, he added: “Wealth managers actually have little interest in discounts. Instead, they are valuing asset allocation and stock-picking.”

He admitted that investment trusts must be on-platform to get growth, and their absence from the bigger players’ offerings is a “drawback”.

Andrew Summers, head of fund research at Investec Wealth and Investment, said: “Size is important, but there are no hard and fast rules, and it is just one consideration. We have supported and continue to own plenty of investment trusts that are smaller than £200m.

Adviser’s view

Kevin Morgan, managing director of Hertfordshire-based Consilium Financial Planning, said: “Investment trusts are the ugly sisters in the investment world in that they have been really loved by the advisory community, in part due to their perceived complexity and lack of transparency. But if these model portfolio teams can pre-assess the risk, I would have a little more confidence in that underlying IT and it would make it much more acceptable to use.”


Research conducted by the Platforum consultancy recently found that investment trusts accounted for only 0.5 per cent of total sales on-platform in the last quarter of 2013.

Three of the sector’s biggest names – Cofunds, FundsNetwork and Skandia – do not currently offer investment trusts.