When I last wrote about investment trusts in this column, the tone wasn’t overly positive. I suggested boards should be taking advantage of their quasi-institutional nature to negotiate more attractive charging structures for investors.
Ten months on and, credit where it’s due, the downwards pressure on fees has accelerated from a few skirmishes into something approaching a price war.
There’s still some way to go here, according to Tilney Bestinvest research looking at open-ended funds versus the same strategy in closed-ended form. As of August the former are cheaper than the latter in 25 out of 47 cases.
But it’s been a few good months for investment trusts, even when the fee issue is disregarded. Progress is being made on a number of fronts.
Let’s start with one battle which, until recently, looked pretty intractable. Investment companies are finally starting to make their presence felt on the larger adviser platforms.
Open-ended property funds’ summer suspensions, however orderly they may have proved, have seen the issue of liquidity mismatches move back up the agendaDan JonesFundsNetwork now has more than 90 trusts on its facility. Rival Cofunds – long a conscientious objector – will also (eventually) begin to offer the products following its takeover by Aegon.
The speed with which FundsNetwork has gained a 9 per cent market share of advisers’ on-platform trust purchases – it seems to have done so with just £15m of gross sales in the second quarter – indicates figures are starting from very low levels. But the 33 per cent jump in the number of adviser and wealth management firms buying in is a more compelling statistic.
The Association of Investment Companies said 1,638 businesses used platform-based trusts in the second quarter, up from 1,230 at the start of the year. This would seem to disprove platforms’ old contention that there was “no demand” for the products.
External events could also contribute to this groundswell of support. Open-ended property funds’ summer suspensions, however orderly they may have proved, have seen the issue of liquidity mismatches move back up the agenda.
The case for holding illiquid assets in trusts has only been strengthened further by the episode, and this is at a time when many asset allocators are looking for alternative, less-liquid strategies as a way of eking out returns.
It’s not just this aspect of trusts’ structure which is being viewed more favourably, if you believe the whispers that regulators are discussing the possibility of creating independent boards for open-ended funds as part of the ongoing asset management market study.
Put into practice, that may cancel out one of investment companies’ better selling points over time. But for now, these developments all look like examples of how the sector is on the up.
Dan Jones is editor of Investment Adviser
