Jeff Prestridge blogs for MM: Time to trust your investments – 3380

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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