Jeff Prestridge blogs for MM: Time to trust your investments – 3378

22nd February 2011

Indeed, Mr Hart would never let me leave the oak panelled dining room without reminding me that Foreign & Colonial was the first investment trust truly to open its doors to private investors by launching a low cost savings plan (in 1984), allowing ‘Jo Public' to purchase small amounts of shares on a regular basis.

It was a splendid initiative that caught on industrywide and which is still available today (go to the Association of Investment Companies' website for further details on investment trust savings plans – in or out of an Isa).

Unfortunately, the investment trust industry has not progressed since Hart's heyday. The awful split capital investment trust scandal of the early 2000's did not help its reputation.

But, more than anything else, it's been overshadowed by the relentless march of the unit trust/open ended investment company.

An unholy alliance between the providers of these products and the financial advisers who sell them – an alliance forged on the altar of commission –  has conspired to give investment trusts only a bit part in the retail funds space.

Unless investment trusts have been prepared to pay regular commission to advisers who recommend them and few have (the exception being Anthony Bolton's hugely popular Fidelity China Special Situations), they haven't had a look in.

Most discount brokers such as Hargreaves Lansdown and Chelsea Financial Services have built their hugely successful low-cost fund purchasing businesses around unit trusts and Oeics.

Investment trusts haven't had a look in even though most of these funds have lower management costs than both unit trusts and Oeics and therefore provide investors with potentially greater value for money.

Yet the funds landscape could be about to change a little in favour of investment trusts.

New proposals from the Financial Services Authority will soon turn many commission-earning financial advisers into fee-charging financial planners. 

Most of these new fee-charging professionals will in turn look to value-for-money investment trusts as ideal vehicles for clients.

Investment broker JP Morgan Cazenove thinks as much. In its 2011 review of the investment trust industry, it believes the new FSA rules for advisers, due to come in next year, provide an ‘attractive opportunity' for managers of investment trusts.

Yet JP Morgan Cazenove notes a word of caution. It goes onto say that not all investment trusts will prosper under this new friendlier environment. Only those that have made themselves investor-friendly will do so.

Investment trusts fit for purpose, it says, will include those that are sufficiently liquid for shareholders to deal in, have simple capital structures and are not plagued by large discounts (which lead to a share price not fully reflecting the value of the trust's underlying assets).

They must also be offering investors something different, whether it's exposure to unusual asset classes (private equity for example) or exceptional investment talent.

I think it's time for you to put investment trusts back on your radar.

Jeff Prestridge is personal finance editor of Financial Mail on Sunday. Follow him on Twitter – twitter.com/jeffprestridge

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16 thoughts on “Jeff Prestridge blogs for MM: Time to trust your investments – 3378”

  1. James says:

    Very interesting contrast between The USA and Europe. Whatever the rights and wrongs of Bernanke’s policy making, he can at least make policy.
    In contrast, there does not seem to be a way of making policy which sticks in Europe. Whatever one thinks of the Finns for demanding collateral, can you imagine, say, Oregon demanding collateral or being able to block a Fed action? Or California challenging the Fed’s right to act?
    We seem to have managed to get to a situation in Europe where the single currency has ended up in disaster for several countries (for varying reasons), but the political constitution cannot really cope. Many countries want to be part of that currency union and pontificate grandly about European visions etc, but, when it comes to hard cash, they revert to being individual countries. I see no way out.

    1. Drf says:

      Hi James, as you comment here Bernanke has been given the authority to “make policy”, without being elected by those he is able to make policy over!  Herein is a remarkable similarity with Europe in that the EU Council of Minsters and the ECB have also been given the authority to make policy and they also are unelected by those they make policy over.

      We then fool ourselves that The West has “Democracy”, and we fight wars to force other countries to impose our form of “Democracy”!  Something seems to have gone very wrong, and intense deceit prevails.

      1. James says:

        Very fair points indeed. At least the Americans can throw out the politicians who appoints Bernanke. We seem in Europe to be another step away, as there seems to be no plausible way of changing the guard in Europe. For example, would you even know how Van Rompuy or the even worse Baroness Ashton could be removed? I have no idea…

        1. Anonymous says:

          This will be the downfall of the EU in the end, the lack of democratic control and the self-appointed nature of the posts. Who, for example, agreed that Merkel and Sarkozy could decide financial policy for the Eurozone, at least? What happened to J-C Juncker, no genius himself, who was said to be the head of the Eurozone finance group? 

          Something is fundamentally wrong when the interests of 2 individuals representing (?) 2 countries can ride roughshod over at least 15 other countries and probably 25. This will not end well.

        2. Anonymous says:

          I agree with you and DRF. However I am cautiously optimistic that the German political system is slowly reacting to Merkel and her EC partners in crime – by that I mean the illegal violation of the Lisbon treaty. From Austria, Finland and Germany to the Netherlands domestic politicians are acting to prevent further waste of taxpayers money. This is a quiet revolution in countries where an uncritical pro-European consensus has ruled for decades.

          The German constitutional court ruling on the bailout could have interesting consequences – it may make for an exciting week in the markets when the verdict is delivered.

    2. Anonymous says:

      Yes, he can make policy but that doesn’t seem to be doing any good at all.   The policy seems to co ordinate the destruction of other peoples.    The only thing going for the US over EU is the reserve currency situation, and how long that will last is moot.

  2. Anonymous says:

    Any discussion of Bernanke should bring in two other names, Henry Paulson and Tim Geitner. The three were the architects of the response to the events of 2008. Central banks have now become stabilisers ( not lenders) of last resort to financial institutions and their markets. Instead of trouble-shooting, they are underpinning markets and risking fiscal capture. The ECB is out of step with this North Atlantic alliance as the BoE appears to be in the Bernanke mould. Here lies a real friction.

    1. Anonymous says:

      Hi Shire

      There was another echo of 2008 today with Warren Buffett investing in a US banking institution. I think the echoes of what happened next then have undone some of the benefits of the cash injection to Bank of America…

  3. Anonymous says:

    Money is not everything. In Greece we are happy
    http://www.stiftungfuerzukunftsfragen.de/nc/en/news/news/article/daenen-sind-die-gluecklichsten-europaeer.html
    I am personally happy with my life: Greece 80%, UK 72%, Germany 61

    1. Anonymous says:

      I guess the song for this is “Don’t worry be happy” By Bobby Mc Ferrin I think.

      I did take a look at the link and the 96% for Denmark has echoes of a sort of Stepford wives syndrome does it not? Can you get 96% of people to agree on anything……

  4. daniel.chisholm says:

    Shaun you write “…that central bank swap lines could be opened on a substantial scale. As this is an area not well covered in the media I have written an explanation guide for this subject in the Explainer section of this site.”

    I wonder if you might post a link to this, it sounds interesting (I haven’t been able to find the Explainer section of this site, I suppose it is right under my nose though!)

  5. Robert Silver says:

    Martin Weale, member of the Bank of England’s monetary policy committee, has given a speech in Doncaster, UK, saying that the BoE could restart QE if oil prices continue to fall and the sovereign debt crisis in the Euro zone continues.  

    Can anyone tell me how oil prices falling has anything to do with QE restarting?  Surely that’s great for the economy and people will possibly fill up their tanks with more petrol, and could, if anything, help push up inflation.

    Please excuse the question, as I’m nowhere near being an economist and just happen to find the blog extremely insightful, if a little over my head (often!).

    1. Michael says:

      I was interested in this too, but no ‘expert’ seems to be available!!
      Clearly the ‘UK establishment’ are absolutely scared stiff of any hint of oil or other comodity reducing in price as this would cancel out their induced inflation.
      UK government in league with the non-independent BoE, plan to continue to stoke inflation as much as they dare for as many years forward as possible. This is the only way to bail out the banks and reduce government borrowings (national debt).
      Any threat to this policy will be attacked with money printing (QE). The key is to keep the £ low and falling against every other currency, and they even manage this against the Egyptian £ and Zimbabwe $ !!!
      However they will come unstuck for one very good reason, and I challenge anyone to point out what will quickly happen to spoil their party if they do introduce more UK QE??

    2. Anonymous says:

      Hi Robert

      I have only seen some highlights of the speech but the conventional Bank of England story is that inflation is exogenous to them. By that I mean that they keep claiming it happened and they had nothing to do with it. However even most of them realise that it is currently too high to have another go at QE. Accordingly they hope for signs of lower inflation going forwards of which a signal would be a lower oil price…..

      Also they need real evidence of a slow down to give them a reason to use more QE. In other words the grimmer the situation appears the more attractive restarting QE would be.

      So in the event of some combination of the two they may get a majority to go ahead with more QE.

      I would add that I am giving you what I think are their views as personally I do not believe QE has done any real good at all.

  6. Ian_jones says:

    Surely Ben didnt think printing money would actually help the real economy? This was tested to destruction in the 70’s which is why rational expectations theory began. The only way printing money will help is to raise inflation so debts in real terms become lower and hence payable. The price of excess debt is paid by the creditors and the poor. More QE can be the only policy which is why gold keeps rising.

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