IT expert view: Robin Stoakley

“We are about the 10th or 11th biggest investment trust manager by assets and fifth or sixth by number of trusts – we’ve got nine funds at a short £2.5bn sterling. It’s a very big part of the business,” he says.

In fact, he argues, the set-up works better for investors and the firm, “We deliberately don’t have a separate investment trust business management team. In terms of business development, we’ve always taken the view that the buying marketplace tends to be agnostic as to whether it is closed or open. The team we’ve got out in the field servicing clients will be talking investment trusts and mutual funds in the same conversation.”

There is also an internal practicality in keeping the two sides of the business close. “We’ve got a number of funds that have the same investment objectives, in a number of cases managed by the same managers, but one happens to be in an open-ended format.” Mr Stoakley gives the example of the Schroders Tokyo unit trust, run by Andrew Rose; Schroders Japan Growth investment trust meanwhile has exactly the same investment objective and is also run by Mr Rose.

“They are two different vehicles but they are essentially the same investment strategy so we don’t separate it out, he explains, adding, “What will probably differentiate will be cash flow on the open-ended fund so if you’re seeing significant inflows or outflows, you may see temporary changes in asset allocation between the two funds but the DNA is always going to be essentially the same. You can absolutely see that you’re taking two apples off the same branch of the same tree.”

As yet there is little business case to convince Schroders to change its set-up. The influx into closed-ended investments following the RDR has not materialised, at least not at the level some forecast. As Mr Stoakley says, the abolition of commission alone was never going to be enough to overcome the vehicles’ perceived complexity.

“They tend to be more intricate and difficult to analyse. The volatility around Nav (net asset value) is definitely an issue. If you get it right you can see a significant jump in share price vs Nav but it is very frustrating for advisers if they make the right asset allocation decision and the Nav may go up 7 per cent but for whatever reason the discount widens and actually the clients get a 2 per cent – or even negative – return. A lot of advisers say ‘I just don’t need that level of added volatility around what is already a volatile class’.”

Issues

Liquidity and access through platforms are also often touted as reasons advisers fail to fully embrace investment trusts. While liquidity is rarely an issue in reality, especially with the big mainstream trusts, it could become a problem if they become more available Mr Stoakley argues, “Platforms take a collection of orders from hundreds of IFAs around the country, process those and place one large order,” he says. “That doesn’t matter in the open-ended world where liquidity isn’t an issue but if you’ve got an investment trust and IFAs might be putting £20,000 in, and you get a hundred of them on the same day, you’ve got an order which can be difficult to execute, both on the way in and on the way out.”

Despite the apparent lack of enthusiasm from advisers, Mr Stoakley does identify some significant growth since RDR, although it might not be deliberate. There has been a growing trend for outsourcing investment to discretionary fund managers (DFMs) which are, according to Mr Stoakley, the principal users of investment trusts, as they were before the RDR. “Demand for investment trusts is steadily growing from financial advisers but indirectly; more IFA-controlled assets are going into investment trusts but via DFMs,” he says.

He does not anticipate any more direct adoption of investment trusts either: “In an ideal world, of course IFAs should embrace investment trusts. But it’s quite a complex addition to your business, particularly if you have an open-ended equivalent. And let’s face it virtually every investment trust has an open-ended equivalent in one way, shape or form.”

However, Mr Stoakley does identify at least one good growth opportunity in the closed-ended world. “Where the closed-ended world is great is that its structure allows asset managers to be more creative, particularly in alternative spaces.” He identifies infrastructure, physical property, private equity and, generally, “illiquid underlyings that don’t lend themselves very easily to an open-ended structure, so that’s where you’re seeing the growth in the investment trust market and that’s where it will continue.”

Douglas Abbott, the firm’s outgoing investment trusts business development manager, agrees, “A broader number of investors are more willing to invest in investment trusts where the liquidity profile of the underlying investment is not very good and therefore you’re giving it a more liquid format.”; Stephanie Carbonneil, who is replacing Mr Abbott when he leaves to head up Schroders’ business development in South Africa, further supports this message. “It’s the perfect vehicle for that kind of suggestion. If you’re after any income and you want to buy into property or infrastructure, it’s the ideal vehicle.”

When asked about expanding beyond the nine investment trusts it currently offers, Mr Stoakley is more bullish, saying he would love to launch closed-ended funds covering Europe, US mid-and small-caps and physical property.

And while investment trusts are experiencing a steady growth rather than the explosion some anticipated, there is still a chance that their unrivalled ability to provide income could see the vehicles emerge as a key solution in retirement planning.

Mr Stoakley elaborates, “There is a lot of pensions being encashed, but a lot of it is going into income-producing assets and investment trusts are really good vehicles for income.”

And the complexity may not end up being such a hurdle for the man in the street, he argues: “Do-it-yourself investors do their own research, and a high proportion will go to investment trusts because they can see that they have some nice benefits.”

Mr Stoakley concedes that these ‘enthusiastic amateurs’ are a minority but adds, “If you consider you’ve got two things happening – people have control of their pension assets and you’ve got the advice gap which is definitely a real phenomenon – you may find more people are forced to become enthusiasts whether they like it or not.”

“It’s fair to say investment trusts are currently firmly in the domain of the professional investor. I personally don’t see that changing over the next few years.” But, he concludes, “it might and I’d like to be wrong.”