Investment trusts: Back in vogue?

  • Learn about trends in the investment trusts market
  • Understand the attractions of investment trusts
  • Grasp some of their misconceptions
  • Learn about trends in the investment trusts market
  • Understand the attractions of investment trusts
  • Grasp some of their misconceptions
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Approx.30min
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Investment trusts:  Back in vogue?

“Over the past couple of years we have also seen an increase in demand for alternative assets that generate a healthy income. Property has captured advisers’ attention after the well-publicised problems of the open-ended property funds following the Brexit vote in 2016.”

As Mr Britton implies, trusts’ ability to hold illiquid assets has helped increase interest from all comers. In 2017, property and infrastructure accounted for 54 per cent of new trust issuance, according to Winterflood Securities – a figure that goes hand in hand with the spike in adviser demand. Equity trusts only accounted for 14.8 per cent in the period.

This year, however, traditional asset classes have played a larger role. Property and infrastructure’s share of new issuance fell to 41 per cent, while equities’ share spiked to 36 per cent. Baillie Gifford has launched a US equity trust, Asset Value Investors has debuted a Japanese value equity strategy, and Terry Smith’s £823m Smithson Investment Trust broke Neil Woodford’s record for the largest investment company fundraising.

Mr Britton and others believe adviser engagement will remain strong despite 2018’s issuance moving away from illiquid assets. Table 3 shows where intermediaries put their money in the first nine months of the year.

Table 3: Adviser purchases by sector, Q1-Q3 2018

Sector

Per cent

Global

19

UK Equity Income

10

Property Direct – UK

8

Property Specialist

7

Infrastructure

7

Global Emerging Markets

6

Asia Pacific ex Japan

4

UK All Companies

4

Private Equity

3

Debt

3

Other

29

Source: AIC. Copyright: Money Management

 

Pascal Dowling, director at Kepler Trust Intelligence, says the fact that sales have remained healthy despite lower issuance from illiquid asset funds shows the increased appeal of investment trusts among the adviser community.

“Advisers who understand the benefits of investment trusts will be pleased to see straight equity portfolios from the teams that have come to market – all of whom have strong reputations – and much of the demand for these trusts will come direct from the end-investor anyway,” Mr Dowling says.

James Budden, director of retail distribution at Baillie Gifford, says adviser interest was initially limited when it first marketed the new US Growth Trust. But since its initial public offering in early 2018, advisers have picked up around 10 per cent of the share register – although this is still overshadowed by the 60 per cent wealth management share and 20 per cent from DIY investors.

He says: “Since RDR there has been more interest from advisers in our trust range. But despite levelling the playing field by removing commission, RDR did not invoke a steep rise in interest. Platforms such as Aegon/Cofunds and Quilter/Old Mutual still don’t list investment trusts and including them in model portfolios, which need regular rebalancing, has proved difficult to manage.”

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