How can advisers access investment trusts?

As the Association of Investment Companies (AIC) points out three investment trusts are celebrating 130 years respectively since their launch.

JPMorgan Global Growth and Income, Scottish Investment Trust and Henderson Smaller Companies were all launched in 1887.

Despite this it has taken years for closed-ended funds to be offered by many of the biggest platforms as open-ended funds remained the more popular investment vehicle among advisers and investors.

Meeting demand

FundsNetwork, Fidelity International’s platform, only began offering access to investment trusts in 2015, with 54 of the most popular available via the platform.

Then in July 2016 it announced it was launching an additional 25 trusts on the platform, citing advisory firm demand, meaning it now offers firms and their clients access to 91 investment trusts.

I think people are more aware now of what’s available, or more aware than they have been in the past.James Burns

At the time of the announcement, Danny Wynn, head of fund partners at Fidelity International, commented: “We have continued to see a steady uptick in demand for investment trusts since we introduced these vehicles on FundsNetwork.”

Is it a case of a lack of demand from investors which means platforms cannot justify offering investment trusts, or if more platforms provided closed-ended funds would there have been more interest from investors?

Just why has it taken so long for some of the major platforms to be able to offer clients investment trusts?

James Burns, co-head of Smith & Williamson’s Managed Portfolio Service, explains: “I think people are more aware now of what’s available, or more aware than they have been in the past. I think post-RDR IFAs feel there’s more pressure on them to consider them, and therefore they are looking at [investment trusts] more.”

The advent of RDR was a turning point, it seems, for the investment trust sector as it forced advisers to look at the range of investment vehicles they could offer their clients.

Those advisers not familiar with the structure of investment trusts and how they sit in a portfolio soon had to brush up on their knowledge.

At the same time, the AIC has been making efforts to help the adviser community familiarise themselves with closed-ended funds by running regular training sessions.

Improving access

Mr Burns notes there have also been more recent investment trust launches, with high profile manager names such as Neil Woodford bringing an investment trust to market.

He says: “Whereas historically they’ve been targeting just the private wealth-type firms like us, they’re also doing open offers to retail as well through Hargreaves Lansdown.”

He believes this means investment trusts have become more accessible to advisers and investors.

Annabel Brodie-Smith, communications director at the AIC is encouraged by the increasing number of platforms offering investment companies.  

“Adviser purchases of investment companies via adviser platforms have nearly tripled since RDR,” she points out. 

“Fidelity FundsNetwork have added investment companies to their offering and there are now only two platforms – Old Mutual and Cofunds – that do not include investment companies.

“Both are working hard to get investment companies up soon with the purchasers of Cofunds, Aegon, announcing recently that they expect clients to have access to investment companies in early 2017.”

The Woodford Patient Capital launch made a significant difference to platforms’ attitude towards investment companies.James Carthew

Often what is holding platforms back from adding investment trusts is technology.

“Some of the older ones haven’t got the necessary technology in place or the dealing teams to execute these in the same way,” points out Mr Burns. “But I just can’t believe there won’t be an ongoing move towards this.”

James Carthew, head of research at QuotedData, says: “There are now sufficient platforms offering investment companies for anyone to be able to access them.” 

He expresses his disappointment though that some of the major platform players are still holding out on putting all investment companies onto their site and says he would like to see the range available expand. 

“This will change over time as platforms recognise that over half of financial advisers are using investment companies. It may be this happens around the time of a new launch,” he concedes. 

“The Woodford Patient Capital launch made a significant difference to platforms’ attitude towards investment companies.”

Quality research

The onus is not just on platforms to help improve awareness of investment trusts among advisers, as research firms also have a role to play.

In February 2017, FundCalibre entered the investment trust ratings market after research revealed its clients have a “strong interest” in education about closed-ended funds.

The firm initially awarded its ‘elite’ ratings to 11 trusts investing in global, UK, European, Asia and Japanese equities and said it expected to add more trusts to its ratings system in the future.

There are still some platforms that do not offer investment trusts but more and more are now doing so.Tony Yousefian

FundCalibre investment company research specialist Tony Yousefian notes: “We think our new, freely accessible, independent fund research on closed-ended funds will be extremely useful to investors and advisers alike.”

He believes there is "a real dearth of quality investment trust research that is freely available to investors".

He adds: “There are still some platforms that do not offer investment trusts but more and more are now doing so.”

But some research firms are not planning to provide investment trust ratings.

Victoria Hasler, head of research at Square Mile Investment Consulting and Research, explains investment trusts simply do not meet their criteria as they are not widely available on all platforms and suggests they are “difficult to use” because investors cannot buy fractions of shares.

She suggests most Square Mile clients do not want to use them and they do not see the demand required to begin rating them.

eleanor.duncan@ft.com