Wealth managers more willing to go off buy list to use investment trusts

A fifth (20%) of discretionary fund managers (DFMs) are choosing to use investment trusts that are not on their firm’s buy list at least monthly, compared to just 7% last year, according to a survey of trust buyers from Research in Finance¹.

The percentage of DFMs, also known as wealth managers, who never go off their buy list for trusts has decreased from 37% last year to 29% this year (see chart).

The increased use of investment trusts that are not on firms’ buy lists coincides with a period of wider-than-usual discounts for trusts. One respondent from a medium-sized firm said: “We have seen a swathe of activity over recent months where we have sought to exploit attractive discounts across the space.”

Another DFM noted: “We are currently reviewing the renewables investment trust space, given the discounts available and structural drivers towards their usage. The sector has been particularly hard hit by the interest rate increases and with these set to reduce in the near term – could be a good opportunity to buy in.” 

The wealth managers surveyed had an average of 26 trusts on their firm’s buy lists, but when asked how many trusts they actually used with clients, the average was half of that: 13 trusts. Trusts tend to feature in bespoke client portfolios (92% of respondents) more than in model portfolios (58%) or funds of funds (42%)².

More than a third (36%) of the wealth managers surveyed describe themselves as “fans” of investment trusts, preferring them to other types of investment, compared to 34% last year.

The percentage of respondents’ portfolios allocated to trusts has dipped from 18% to 14%. However, almost a third of respondents (32%) expect to write more investment trust business over the next six months, compared to 12% who expect to write less, and 56% who expect no change. 

The percentage of respondents expecting to write more investment trust business has increased since last year, when it was 24% (see chart). 

Among those expecting to write more investment trust business, attractive discounts were the top reason, cited by 82% of respondents – although this did represent a decrease from 95% last year (read more about last year’s research).

Meanwhile, other reasons increased in importance, such as strong performance of certain trusts (up from 30% to 40%), increasing exposure to specialist assets (up from 24% to 38%) and a more favourable view of investment trusts generally (also up from 24% to 38%).

Commenting on the research, Nick Britton, Research Director of the Association of Investment Companies (AIC), said: “At a time when centralised investment propositions are exerting more of a stranglehold on wealth managers’ investment decisions, it’s encouraging to see that many individuals are able to go off buy list in pursuit of attractive opportunities for their clients. Wide discounts are still by far the main reason that wealth managers are looking to increase their exposure to trusts, but this year we have seen that factor diminish in importance and other traditional advantages come to the fore, such as strong performance and access to alternative assets.”

Toby Finden-Crofts, CEO of Research in Finance, said: “It is clear centralised buy lists are used extensively by wealth managers and discretionary fund managers. But to take advantage of the opportunity investment trusts offer, investors are increasingly using funds which sit outside of the buy lists. Our research shows that it’s not only the structural benefits of the products that are appealing but the access to some interesting and less accessible markets, such as private equity, infrastructure and renewables.”

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Notes to editors

1. The UK Investment Trust Study (UKITS) from Research in Finance is an annual survey of DFMs who are investment trust buyers. This year, 157 DFMs were surveyed, of whom 87% (137) were from firms with a centralised buy list. The research is funded by a consortium of asset managers and the AIC. 
2. Respondents from firms with a centralised buy list were asked how many investment trusts were on that buy list. All respondents were asked how many investment trusts they used with clients, and whether those trusts were used in bespoke client portfolios, in model portfolios or in multi-asset/fund of fund solutions.
3. The Association of Investment Companies (AIC) represents a broad range of investment trusts and VCTs, collectively known as investment companies. The AIC’s vision is for closed-ended investment companies to be understood and considered by every investor. The AIC has 325 members and the industry has total assets of approximately £276 billion.
4. For more information about the AIC and investment trusts, visit the AIC’s website. 
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