Attractive discounts, exposure to specialist assets and strong performance are the main reasons that wealth managers are increasing clients’ exposure to investment trusts, according to new research among 157 discretionary fund managers (DFMs) who use trusts. The study was conducted by Research in Finance1.
While the bulk of respondents (63%) expect to hold investment trust exposure steady over the next six months, 26% are looking to increase exposure while 11% are looking to reduce it.
Among those looking to write more investment trust business, the top reason cited by 68% was attractive discounts. The second most cited reason, by 51% of respondents, was the desire to increase exposure to specialist assets, while the strong performance of certain trusts came third, mentioned by 39%.
Other reasons included a generally more favourable view of investment trusts (27%), the desire for gearing (27%) and to take advantage of volatility (24%).
One respondent noted: “We look to use investment trusts to provide diversification. It also allows us to provide access into specialist markets like property.”
Investment trusts remain DFMs’ favoured vehicle for gaining access to private assets such as private equity and infrastructure, according to another recent study from Research in Finance which surveyed wealth managers and institutions2. Nine in ten DFMs surveyed (91%) said they would use investment trusts to gain access to private markets, while 23% would use semi-liquid funds like the Long-Term Asset Fund (LTAF) and only 14% would use illiquid funds such as limited partnerships (LPs).
Financial advisers and high net worth advisers are also more likely to use investment trusts than semi-liquid funds or illiquid funds. However, institutional investors are more likely to favour illiquid or semi-liquid funds over investment trusts, the research suggests.
Nick Britton, Research Director of the Association of Investment Companies (AIC), said: “Investment trusts have retained their role as the Heineken of investment vehicles, reaching parts of the market that aren’t easy to access in other ways. Wealth managers like the way they provide flexible and convenient exposure to private markets and more specialist equities, and these attractions are enhanced by wide discounts, which is still the top reason many are looking to increase their investment trust exposure.
“In contrast, semi-liquid funds offer exposure to private markets at or close to net asset value, typically with lock-in periods and redemption limits. This research suggests that this combination of characteristics is more appealing to institutional investors than it is to wealth managers and advisers.”
Oliver Crawford, Research Manager at Research in Finance, said: “Our data shows that wealth managers continue to value investment trusts as a means of gaining exposure to private assets such as property and private equity. While LTAFs are relatively new, investment trusts have been an important part of the UK’s investment landscape for over a century. And unlike LTAFs, investment trusts offer daily dealing, which is a key advantage in the eyes of wealth managers when considering which vehicle to use for accessing private markets.”
