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Why investment trusts are a good alternative for income

 

Closed-ended investment trusts offer “something different” to advisers searching for income for their clients, according to Annabel Brodie-Smith.

Ms Brodie-Smith, director of communications at the Association of Investment Companies, said investment companies had a “great record” on dividend increases, as 21 trusts had increased their dividend for more than 20 years and four had boosted it for the past 50 years.

She added: “This is something clients find very reassuring. With investors staying invested for longer due to pension freedoms, advisers need to consider investment companies as being useful for different investment needs.”

Ms Brodie-Smith also spoke about the “clear problem” with holding illiquid assets in open-ended funds which offered daily dealing.

She said: “We are concerned about this, and the Bank of England has said there is a systemic risk because of this problem.

“We have suggested a solution of a reliable redemption — where the terms of the fund reflect the time spent to sell the assets, effectively a notice period.

“In the meantime, if advisers want to avoid this there are closed-ended property companies whose shares trade daily.”

Tackling the fact closed-ended funds had significantly fewer assets than their open-ended equivalents, Ms Brodie-Smith said the AIC was focussed on “quality not quantity”.

imogen.tew@ft.com

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