His main focus these days is running the £1.1bn Capital Gearing investment trust, which has delivered a positive return for investors in 39 of the 40 years he has run it, as well as the wider business.
At £1.1bn it is quite big for a UK IT, but Spiller claimed the wider sector is in some bother.
He said this was as result of regulatory changes in recent years, consolidation in the adviser and wealth management universe, and the performance and priorities of the boards of investment trusts - entities that are supposed to represent the interests of investors in trusts.
We realise there can still be frictions when incorporating them into model portfolios.Nick Britton, AICAccording to Spiller, the regulations were having a negative impact on advisers ability to own investment trusts include the requirement for an adviser to conduct a fact find, and place a client into investments based on their risk tolerance.
Because this means, in practice, that clients with the same risk tolerance must be placed in the same portfolios. This can, said Spiller, dampen demand for ITs as the share prices of those vehicles moves daily.
For example, if a wealth manager decided to place all of his clients within a “cautious” portfolio into a particular IT, the risk is the upward share price movement that results in the relative attractiveness of the IT declining for the later clients in the advisers “cautious” portfolio.
As clients are supposed to get the same investments, buying the same trust could leave the later clients at a disadvantage.
This can, says Spiller, mean that some of the bigger advice or wealth management firms are unable to include ITs in their client portfolios.
The impact of this is exacerbated by the wave of consolidation in the advice market.
As firms combine, the size of the portfolios they manage rises, so the amount of money they manage for clients in each of the risk buckets is larger, and the chances of moving the price of an IT upwards increase.
Need to merge
Spiller said trusts would will need to merge in order to become big enough to have sufficient liquidity for those large wealth managers to be able to buy.
The group of people responsible for driving mergers in the IT world are the broads of directors of the trusts.
Spiller explained that while there has been some such mergers in recent years, if more do not happen, “the majority of the sector will not be viable."
He also said IT boards need to be more active in managing the discounts at which some investment trusts trade, as this can be off -putting for advisers and clients.
Capital Gearing has a zero discount policy, meaning that if a discount occurs, the trust uses its own money, often raised from selling assets, to buy back the shares of the trust, this would be expected to push the share price up, and therefore close the discount.
He said if advisers and wealth managers had greater certainty around the issue of discounts, then ITs would be more appealing.
This centres on the fact that a trust which swings between discount and premium could be viewed as having a different risk profile as those movements happen, making them more difficult to include in risk weighted portfolios.
Nick Britton, head of intermediary communications at the Association of Investment Companies, the trade body for investment trusts said: “Last year marked a record for investment company mergers, with five being completed; two more have been finalised this year with another in the pipeline.
"Boards have also been prepared to propose winding up investment companies when they have reached the end of their useful life – we’ve seen 15 of these wind-ups since the start of the Covid pandemic.
"These actions help keep the investment company universe healthy and respond to investors’ demand for larger, more liquid investment companies."
He agreed that, to some extent, discount volatility "comes with the territory" for investment companies.
But he said trying to restrict a discount in a narrow range close to zero was not always realistic, and could result in the forced selling of assets in a downturn. This particularly held true when assets are less liquid.
Nevertheless, the AIC data showed 72 per cent of investment companies now have discount control policies which help limit volatility for shareholders.
Britton added: "We realise there can still be frictions when incorporating them into model portfolios, especially large model portfolios.
"Liquidity is largely a function of investment company size and the amount of shares you are trying to trade, just as it is with any listed company.
"We have issued research on the use of investment companies in model portfolios to help advisers and wealth managers navigate these issues.”
david.thorpe@ft.com
