Investment trusts have long been viewed fondly by Money Management readers, but other advisers think differently. It was back at the start of the 2000s that attitudes to investment trusts started to sour via the arrival of the split-capital crisis. It was bad timing for the products, given the growing ease of investing in open-ended funds and the rise of investment platforms, and they have never really recovered.
One new era was already supposed to have dawned. Many predicted the RDR’s effort to bring about the end of commission-based biases would tilt the playing field back in favour of trusts. There was no immediate shift, but six years on, things may finally be starting to change.
Adviser purchases of investment trusts reached record levels in 2017, and sales have held up well amid the volatility of 2018. But headline figures do not always tell the whole story. And with a greater focus on costs, the rise of model portfolios that require regular rebalancing, and the enduring popularity of active and passive open-ended funds, the future is far from assured. Can trusts truly stage a comeback?
First, a look at the figures. Just shy of £1bn of capital flowed from advisers into closed-ended products in 2017, up 44 per cent from 2016. As Table 1 shows, the first three quarters of 2018 saw £739m of sales, meaning interest has remained constant in a year of decidedly mixed sentiment.
Table 1: Gross IT purchases from adviser platforms
Year | £m |
2012 | 219.3 |
2013 | 336.9 |
2014 | 452.7 |
2015 | 697.7 |
2016 | 692.1 |
2017 | 999.5 |
Q1-Q3 2018 | 739.2 |
Source: AIC. Copyright: Money Management
Yet in some respects cheer should be limited, because net sales are less positive. In 2017, the £1bn of gross sales only resulted in £415m of new money (see Table 2). In the first three quarters of 2018, it has meant only £295m. Compare this with the open-ended sector and the difference is stark. Net sales into open-ended funds grew 585 per cent from 2016 to 2017, versus investment trusts’ 98 per cent increase. The former figure takes into account all retail buyers, not just advisers, but the figures speak for themselves nonetheless.
Table 2: Net IT purchases on adviser platforms
Year | £m |
2012 | 106.8 |
2013 | 181.7 |
2014 | 140.4 |
2015 | 310.6 |
2016 | 209.2 |
2017 | 414.7 |
Q1-Q3 2018 | 295.2 |
Source: AIC. Copyright: Money Management
The Association of Investment Companies remains confident of its growing relationship with the adviser community. Nick Britton, head of intermediary communications, says the trade body is content with the rise in sales. He adds that since RDR, adviser and wealth manager purchases of investment trusts have quadrupled, slowly undoing the bias against the products under the old commission model.
“Advisers are recognising the benefits of investment companies, including their strong long-term performance, income advantages and suitability for illiquid assets like property and infrastructure,” Mr Britton says.
“Over the past couple of years we have also seen an increase in demand for alternative assets that generate a healthy income. Property has captured advisers’ attention after the well-publicised problems of the open-ended property funds following the Brexit vote in 2016.”
As Mr Britton implies, trusts’ ability to hold illiquid assets has helped increase interest from all comers. In 2017, property and infrastructure accounted for 54 per cent of new trust issuance, according to Winterflood Securities – a figure that goes hand in hand with the spike in adviser demand. Equity trusts only accounted for 14.8 per cent in the period.
