It is fair to say that Robin Stoakley’s role as Schroders’ head of intermediary involves a lot more time in the open-ended investment space than in closed-ended. But he is at pains to stress that the lack of an equivalent to his role specialising in investment trusts does not mean that side of the business is less important in any way.
“We are about the 10th or 11th biggest investment trust manager by assets and fifth or sixth by number of trusts – we’ve got nine funds at a short £2.5bn sterling. It’s a very big part of the business,” he says.
In fact, he argues, the set-up works better for investors and the firm, “We deliberately don’t have a separate investment trust business management team. In terms of business development, we’ve always taken the view that the buying marketplace tends to be agnostic as to whether it is closed or open. The team we’ve got out in the field servicing clients will be talking investment trusts and mutual funds in the same conversation.”
There is also an internal practicality in keeping the two sides of the business close. “We’ve got a number of funds that have the same investment objectives, in a number of cases managed by the same managers, but one happens to be in an open-ended format.” Mr Stoakley gives the example of the Schroders Tokyo unit trust, run by Andrew Rose; Schroders Japan Growth investment trust meanwhile has exactly the same investment objective and is also run by Mr Rose.
“They are two different vehicles but they are essentially the same investment strategy so we don’t separate it out, he explains, adding, “What will probably differentiate will be cash flow on the open-ended fund so if you’re seeing significant inflows or outflows, you may see temporary changes in asset allocation between the two funds but the DNA is always going to be essentially the same. You can absolutely see that you’re taking two apples off the same branch of the same tree.”
As yet there is little business case to convince Schroders to change its set-up. The influx into closed-ended investments following the RDR has not materialised, at least not at the level some forecast. As Mr Stoakley says, the abolition of commission alone was never going to be enough to overcome the vehicles’ perceived complexity.
“They tend to be more intricate and difficult to analyse. The volatility around Nav (net asset value) is definitely an issue. If you get it right you can see a significant jump in share price vs Nav but it is very frustrating for advisers if they make the right asset allocation decision and the Nav may go up 7 per cent but for whatever reason the discount widens and actually the clients get a 2 per cent – or even negative – return. A lot of advisers say ‘I just don’t need that level of added volatility around what is already a volatile class’.”
Issues
Liquidity and access through platforms are also often touted as reasons advisers fail to fully embrace investment trusts. While liquidity is rarely an issue in reality, especially with the big mainstream trusts, it could become a problem if they become more available Mr Stoakley argues, “Platforms take a collection of orders from hundreds of IFAs around the country, process those and place one large order,” he says. “That doesn’t matter in the open-ended world where liquidity isn’t an issue but if you’ve got an investment trust and IFAs might be putting £20,000 in, and you get a hundred of them on the same day, you’ve got an order which can be difficult to execute, both on the way in and on the way out.”
