Investment trusts shift focus to D2C market

Investment trusts shift focus to D2C market
Private investors are turning to the higher yields offered by investment trusts in the current low-rate environment

Private investors are becoming “increasingly important” to the managers of mainstream investment trusts, with individuals taking a much greater presence on these funds’ shareholder registers as they warm to closed-ended vehicles.

In recent years professional fund buyers have upped their focus on investment trusts, predominantly with an eye to increasing alternative asset exposure. 

In contrast, equity vehicles appear to have found a fresh source of demand in the form of the direct-to-consumer (D2C) market.

“The retail market is becoming increasingly important for investment companies with equity mandates, particularly smaller funds that struggle to get on the buy lists of private wealth managers,” said Charles Cade, head of investment companies research at Numis.

“The key driver is the growth in personal pension provision and self-management via platforms such as Hargreaves [Lansdown].”

Some providers have already noted a material shift. Adam Gent, head of retail and wholesale for northern Europe at Allianz Global Investors, said all three of the asset manager’s investment trusts had seen D2C representation increase in the two years to June 30 2017. 

The £517m Merchants Trust, a UK equity vehicle, has seen its proportion of shares owned by private investors rise from 17 to 25 per cent.

Mr Gent noted that the fund house had been more active in marketing such products. Changing investor behaviour was another factor, he suggested.

“Since the introduction of RDR, private investors have undertaken their own research into funds and then transacted via the cheapest or most user-friendly platforms,” he said.

The trend breaks with developments seen in the professional investor space.

In the first quarter of 2017, adviser and wealth manager purchases of investment trusts reached £246m, the second highest level on record, according to the Association of Investment Companies (AIC). 

Much of this appeared to be driven by demand for specialist vehicles, with the Sector Specialist: Debt peer group proving the most popular.

The second most popular sector was Property Direct – UK.

Yield may be a driving factor in both cases. Annabel Brodie-Smith, communications director at the AIC, said: “In the current low interest rate environment, more private investors are attracted to the higher or more consistent yields offered by many investment companies. 

“Increasingly, investment companies are available on consumer and adviser platforms, making them easily accessible.”

Simon Elliott, head of research at Winterflood Investment Trusts, also cited performance as a reason for the shift.

“There has been some discussion across the industry whether, post-RDR, individual investors are receiving less of a service from intermediaries and are simply left to ‘fend for themselves’,” he said. 

“I suspect the reality is that the sophistication and prevalence of the leading platforms makes it easier for investors to identify and access investment trusts.”

Mr Elliott also pointed to a “consolidation of holdings” in recent years, with investors less focused on savings plans provided by one fund manager. 

Last month BlackRock announced it had opted to move its investment trust savings plan to Hargreaves Lansdown, in part due to the latter’s “increased functionality”.