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Investment trust insider on the changing face of investment trust investors

Investment Trust Insider on Capital Gearing Trust

Investment trust insider on the changing face of investment trust investors – James Carthew: trusts can thrive without wealth managers

A few years ago, we started to come across ‘gatekeepers’ at the larger wealth managers who announced their firms would no longer use investment companies below a certain market capitalisation.

These size thresholds have risen steadily since to as much as £400-500m. This was an inevitable fallout of the trend towards straightjacketing financial advisers (and their clients) into model portfolios. This shift was perhaps only to be expected given the regulatory pressures imposed on the investment industry.

This matters to end investors because, over the long term, trusts beat open-ended funds. Gavin Lumsden, as ‘Gavatar’, recently cited a report by Numis that demonstrated this to be the case even after the widening of discounts and NAV falls amplified by gearing associated with this year’s Covid-19 slump.

Gearing (borrowing), the ability to take a long-term view and reduced cash drag are all reasons why this is the case. However, the conversations that we have had with a wide range of managers of investment trusts over the past few months illustrate the superiority of closed-end structures perfectly.

Over and over we have been told that fund managers bought bargains in the crash, geared up to take advantage of opportunities and picked up quality stocks that they would never normally have been able to justify on valuation grounds – the sellers were often managers of open-ended funds, panicking because of real or anticipated redemptions by their investors.

Over the many years that I have been following the investment trust industry, it has had to strive constantly to remain relevant and attract new investors….

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