What came first?

You might call it a chicken-and-egg dilemma. One reason some financial advisers traditionally gave for neglecting investment companies was a lack of access to data and analysis from the closed-ended sector; but with fewer advisers investing in investment companies, the third parties may have felt there was little incentive to provide that data and analysis. 

Fortunately, we’ve moved on somewhat from this catch 22. The number of financial advisers making investment company purchases has consistently and significantly increased over the past three years. All the data from intermediary-focused platforms suggests that this is as much as a three-fold increase, which has been accompanied by steady growth in the amount of research and information that is available on the sector.

The latest breakthrough came last week with an announcement from FundCalibre, the investment research firm, that it has begun rating investment companies for the first time. The firm said it was responding to strong demand for coverage of the closed-ended fund sector and launched its service by awarding its “Elite” ratings to 11 investment companies across a range of sectors.

FundCalibre joins a number of other independent services in offering investment company ratings – these include Morningstar, FE Trustnet and Citywire. In addition, specialist investment company analysts at firms such as Numis, Canaccord Genuity, Winterflood and Stifel continue to provide analysis and fund views.

It’s an increasingly crowded marketplace, but that’s to the credit of the investment company sector, which until recently could hardly have described itself as a centre of attention.
The Association of Investment Companies itself is entitled to take a bow. Since the retail distribution review reforms of three years ago, the AIC has worked hard to educate large numbers of financial advisers about the sector – where poor awareness amongst intermediaries once stood in the way of investment in closed-ended funds, that is no longer the case. And as the understanding of the sector amongst those intermediaries has increased, so they’ve sought out more analysis – and worked to identify the best places to buy.

There’s more work to be done, of course, particularly amongst the online platforms that increasingly dominate purchases of investment funds. The fact that influential FundsNetwork now offers an expanded choice of investment companies is to be welcomed, but Cofunds and Old Mutual Wealth, two important platforms, still haven’t got around to launching their own services.

Nevertheless, financial advisers can no longer claim that a lack of good-quality analysis is standing in the way of them investing clients’ money in investment companies; and even advisers who may have had little to do with the sector now have a much more thorough understanding of it.

That’s not to say, of course, that all advisers are now embracing investment companies. But at least those intermediaries who still do not feel comfortable allocating clients’ money to the sector can’t claim there’s a lack of information out there. In fact, we’ve come completely about, from that initial catch 22 to a virtuous circle. The increasing thirst for investment company knowledge amongst advisers has encouraged providers of that insight to enter the fray – and better armed with good analysis, more advisers are investing.