I am not going to beat around the bush when it comes to investment trusts and closed-end funds listed on the main market, I love the overall concept and structure. And on most counts I would always pick a listed fund over a wrap platform unit trust.
But although I am an evangelist for listed funds I am in a tiny minority, consisting of private investors who take the process of researching funds seriously, and high-net-worth advisors who like the specialist skills and low management costs of listed vehicles.
That minority status clearly rankles with the AIC which is constantly trying to punch above its weight and suggest investment trusts should be considered by all investors (which of course they should!).
In this spirit a couple of weeks back the AIC put out a press release that linked together the RDR and hopes for a greater uptake of investment trusts amongst mainstream advisers.
It does not take a genius to work out why the RDR excites enthusiasm amongst trusties and it also does not take a genius to predict that the reaction from the great and good of the IFA community in this note was well… rather tepid would be my summary.
The AIC is right to keep banging the drum for investment trusts but I would suggest it is a complete waste of time when it comes to mainstream investors and their advisors.
In fact I would go so far as to suggest the existing community of users is probably already big enough on their own and it should instead concentrate on improving the sectors already legion attractions rather than trying to fight Goliath.
Mainstream advisors and investors will rarely touch investment trusts not just because they do not pay commission (Fact) and cannot be purchased through a wrap platform with a few exceptions.
For many retail investors investment trusts (like ETFs) are a bit too complicated, a bit too specialist and they require proper research and hard work. Better just to stick to the Top 150 star unit trust fund managers, add an asset allocation software based overlay and then file away under ‘review once in a blue moon but keep collecting the trail commission’.
No, investment trusts need to focus back on the core community – sophisticated private investors and planners/wealth advisers – and improve the product.
Only once that is done should it bother to try and tilt at Goliath.
A number of suggestions come to mind. First off, ban performance related fees in mainstream investment trusts – I will be touching on this nasty new practice next week.
Next up the investment trust sector needs to improve accountability and reporting of illiquid assets. Investment trusts are the right vehicles for illiquid assets like private equity or venture capital but they need to improve and standardise the reporting of difficult to sell assets so that the stated NAVs can have some real meaning. All talk of NPV and fair value should be banned or rigorously hemmed in by reporting guidelines.
Investment trust groups should also drop all this talk about building the better generalist fund of tomorrow and focus on its knitting – I like investment trusts because they can offer specialist mandates.
Last, but by no means least, if the industry wants to improve access to its products why not club together and set up its own common platform savings scheme structure.
Build a clearing house between the major saving plan administrators such as Capita, BNP Paribas and Jarvis that allows investors to house their savings schemes in one place (but in fact with a number of different registrars) with all the funds in the industry encouraged to participate.
Make it low cost, open architecture and on line – it would not cost much in the great scheme of things and the AIC could easily provide inspiration and even funding.
David Stevenson is a Financial Times columnist and consultant. Email him at davidcstevenson@gmail.com
