An exploration of investment trusts and client suitability

  • Explain why investment trusts may be suitable for certain clients.
  • Describe key elements of investment trusts and how they work.
  • Understand how they can be used effectively to augment certain client portfolios.
  • Explain why investment trusts may be suitable for certain clients.
  • Describe key elements of investment trusts and how they work.
  • Understand how they can be used effectively to augment certain client portfolios.
pfs-logo
cisi-logo
CPD
Approx.30min
pfs-logo
cisi-logo
CPD
Approx.30min
twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
pfs-logo
cisi-logo
CPD
Approx.30min
An exploration of investment trusts and client suitability
Artem Podrez via Pexels

The FCA has already tacitly accepted that daily-dealing open-ended funds that invest in property are not fit for purpose. It launched a consultation last year proposing that notice periods of 90 or 180 days are introduced for such funds.

If open-ended property funds are not fit for purpose as they are currently constituted, it is hard to see how they could be suitable for any individual client. 

There is a selection of investment trusts that invest directly in UK property, including generalist commercial property portfolios (in the AIC’s Property – UK Commercial sector), warehouses (Property – UK Logistics) and residential (Property – UK Residential). 

There are also investment trusts that invest in infrastructure projects, private debt, private equity, social impact investments, song royalties and venture capital. 

In most of these cases there are no open-ended alternatives. Where these exist, they often work by investing into the investment trusts – at the cost of an additional layer of fees.

It is also worth mentioning the increasing number of investment trusts that invest in mainstream equities, but have a portion of their portfolio invested in unquoted companies. 

It went very wrong with Neil Woodford, but the closed-ended structure of an investment trust means no trading suspensions or forced sales. Scottish Mortgage, Fidelity China Special Situations and Baillie Gifford Shin Nippon are among the investment trusts whose mandates allow them to invest in unquoted companies, which can be a fruitful source of growth opportunities as public markets slowly continue to shrink. 

In conclusion, investment trusts can be suitable for a range of clients, not just those with a high appetite for risk. 

Depending on individual client needs, investment trusts can offer reliable streams of income, the opportunity for strong long-term growth, and access to less liquid assets in a stable, closed-ended structure. 

The AIC offers free training on investment trusts to all advisers and if this is of interest, we would be delighted to hear from you.

Nick Britton is head of intermediary communications at the Association of Investment Companies 

PAGE 4 OF 4
CPD
Approx.30min
Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.
  1. Why should investment trusts be considered for more clients according to the author?
  2. What is it that makes the FCA think investment funds are within an IFA’s remit?
  3. All investment trusts are riskier than all oeics.
  4. What is the impact of widening discounts according to the author?
  5. The closed-ended structure of an investment trust means no trading suspensions or forced sales according to the author.
  6. Investment trusts, according to the article, offer:
  7. To bank your CPD you must sign in or Register.