I had the privilege a few days ago of interviewing fund manager Ciaran Mallon of Henley-based investment house Invesco Perpetual. An individual who has been quietly plying his trade as an investment manager for the past two decades and more – until recently very much in the shadow of Neil Woodford before he decamped from Invesco to go it alone.
There was nothing particularly revealing about the verbal exchange we had. I wanted to write about one of the investment trusts he runs, Invesco Income Growth, for a fund focus slot in the personal finance section of the Mail on Sunday. He kindly obliged by answering my questions.
For the record, Invesco Income Growth has just marked its 20th consecutive year of delivering shareholders an increase in their annual dividend. This is no mean achievement. Precious few income oriented investment vehicles – just 20 – have established equivalent or better dividend growth track records.
Over the past five and 10 years, it has also outperformed the FTSE All Share Index, proving Mr Mallon’s worth as an active fund manager – something that cannot be said of all investment managers.
Without wishing to decry Mr Mallon – who got a degree in chemistry from Oxford University many moons ago – he was not as forthcoming as most managers. But, in a way, he is the kind of investment manager I would want to look after my investments, if I had any.
He is conservative with a small ‘c’ and more reticent than enthusiastic; more comfortable with balance sheets and dividend pay-out ratios, I would surmise, than fending off ferreting journalists. I know this cuts across the current grain, but it is my contention that the fund management industry needs more individuals like Mr Mallon who get their head down and quietly run money on behalf of investors.
The fund management industry needs more individuals like Mr Mallon who get their head down and quietly run money on behalf of investorsIt also requires more investment trusts like Invesco Income Growth, which are set up primarily to further the best interests of investors rather than derive vast profits for the investment house that manages them and, of course, the individual fund manager at the proverbial coal face.
Yes, let us have more boring fund managers and fewer robotically controlled investment funds. Yes, more conservatism a la Mr Mallon and less of the flash marketing that has often been a characteristic of the fund management industry. It is a characteristic that has often ended in tears. Think split capital investment trusts. Think technology funds.
Overlooked investments
Despite the wonderful work the Association of Investment Companies does in promoting investment trusts, it is still my contention that these investments are wrongly overlooked by most financial advisers.
Ian Sayers, AIC boss, said as much in a recent blog entitled Flat Whites and Consumer Rights (interesting title). Although he is delighted that annual purchases of investment trusts (investment companies) by advisers via fund platforms have quadrupled since RDR was imposed on the financial world, they still only account for a smidgeon – less than 1 per cent – of all fund buys. Most advisers prefer either low-cost exchange-traded funds, which is understandable, or traditional – and more expensive – unit trusts and open-ended investment companies, which is less defendable.
It seems some advisers do not quite understand how investment trusts work or think they are more complicated than they really are (gearing and all that). They also hold back, Mr Sayers said, because of "misunderstandings over their regulatory duties".
The AIC chief executive concluded his blog by calling for more advisers to "deliver the best long-term outcomes for their clients" – which, of course, is code for them to use investment trusts, not unit trusts, ETFs or Oeics.
I am with him. In an investment world where the regulatory focus is increasingly on investor costs, greater disclosure and transparency, investment trusts tick most consumer – and, by implication, adviser – boxes.
Compared to unit trusts, they have lower ongoing charges; Invesco Income Growth’s is a competitive 0.71 per cent. Crucially, they are also overseen by independent boards which, if they are doing their job properly, regularly hold the investment managers to account. Indeed, they can fire them if they are not performing or demand that charges are lowered so as to give shareholders (investors) an ever better deal.
Tiered fees
Increasingly, boards are persuading the managers of investment trusts to accept tiered fees where the management charge drops on a trust’s assets above a certain size. This makes great sense. Trusts managed by investment houses JPMorgan and Baillie Gifford have adopted such charging structures.
In a recent note, respected trust analyst Alan Brierley of financial services company Canaccord Genuity said it was imperative that investment trust boards continued to "remain cost competitive". In other words, reduce management charges, especially given the "inexorable rise of passive funds" and strong demand for "alternatives", investing in everything from infrastructure to agriculture.
He ended his note by stating: "We expect to see more companies [investment trusts] move to a tiered structure. If economies of scale are not passed on, shareholders are entitled to ask why not?"
Spot on. And, yes, before you ask, Invesco Income Growth has already adopted such a charging structure.
Jeff Prestridge is personal finance editor of the Mail on Sunday
