But even today, five years after RDR, some 95 per cent of investment assets are with open-ended funds. This means that, among all the uncertainty, the opportunity is huge for those who plump for the alternative.
In the words of the AIC, investment companies can provide better long-term performance, with the average investment company returning 165 per cent over the past 10 years, compared with 108 per cent for the average open-ended fund.
The need for income
What is certain is that those with money will need income from it, and preferably a rising income. This is particularly the case if the pound stumbles in the event of a poor outcome to Brexit, since a weak currency will certainly lead to inflation, as imported food and other necessities drive up shop prices.
As a result, intermediaries should consider not only investment trusts, but especially those designated by the AIC as dividend heroes – those that have succeeded in increasing their dividends every year for each of the past 20 to 50 years.
For safety, these should only be those with global mandates. We must hope that the UK will prosper outside of the EU, but we will not know if this is the case until the process is over.
Learning from the past
English schoolchildren are no longer taught about the South Sea Bubble of 1720. This was Europe’s greatest-ever banking crisis, involving London, Paris and Amsterdam: the central banking equivalent then of today’s New York. For the next 50 years, it was impossible to raise equity for business, but business needs did not go away because of the bubble.
Equity is the risk capital needed between the conception of a business and its conversion into a profitable and income-paying reality.
Without the possibility of issuing equity, Dutch merchants and London bankers had to collaborate in financing West Indian tobacco and sugar plantations, developing rum distilleries, as well as purchasing land and building houses in the US.
The solution was to amalgamate individual projects into one, but at different stages of development and income production. The land itself was also combined and collateralised on behalf of investors, so that what were equity investments could be dressed up as secure bond investments.
A century later, F&C used this technique to offer investors twice the yield available on British government bonds by investing in issues of colonial governments instead. The initial promise to investors was 6 per cent, but the average yield over the next 150 years was more than 8 per cent a year.
That result was not luck, but judgement. That is what investors need now, with the world yet to recover from the 2008 banking crash, and Britain lurching into the economic unknown.
