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If it ain’t broke: how fund managers see investment trusts

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18 September 2015

Nick Britton, Head of Training, AIC.

It was a real pleasure to hear from Alistair Mundy and James Henderson at our Glasgow and Edinburgh seminars last week. Both fund managers are well known for running investment companies – Alistair for Temple Bar, James for Henderson Opportunities, Law Debenture, and Lowland. But they also manage open-ended money, which was one of the several reasons we asked them to speak to an audience of advisers and wealth managers perhaps more familiar with OEICs and unit trusts than their closed-ended relatives.

It probably goes without saying that both fund managers are very diplomatic when comparing their open and closed-ended mandates. ‘I love all my children equally,’ says James. But they also make a few very interesting comments that highlight the slightly different skills and approaches needed to manage each type of fund.

James regards running investment trusts as a very ‘pure’ form of investing. By that he means that the fund manager is free to make investment decisions purely on investment grounds, without the constant inflows and outflows that have to be factored into the decision-making on open-ended funds.

Alistair echoes this. ‘Investment trusts have just been a good place to make money,’ he says, pointing out that in many cases low costs have been a big help (Temple Bar has an ongoing charge of 0.48% and no performance fee).

Listening to statements like these, I was struck by the contrast between how investors and analysts tend to see investment trusts, and how fund managers see them.

If you listen to most of what is said about investment trusts, you might get the impression that they’re a bit like London’s tube system: impressive in its way but a bit complicated, in need of constant upgrading to keep it running smoothly. Discount volatility giving you a bumpy ride? Bring in a discount control policy. Delays in finding a buyer for your shares? Introduce redemption options.

But the way managers see a closed-ended fund is more like how us ordinary folk would see a can opener, or a bicycle. It’s a fairly straightforward tool that does a straightforward job. You could try to improve or modernise it by adding any number of bells and whistles. But the risk is that the modifications would serve no real purpose and merely add complexity (and cost) to what was a simple, classic design that’s stood the test of time.

For advisers, investment trusts can seem a bit complicated compared to OEICs. For managers, they seem simpler. No worry about inflows and outflows. No 'sales', except on rare occasions. Far fewer worries about the liquidity of what they're investing in. Just a pot of money to run. 

I don’t mean to say that the fund manager’s perspective is more valid that of the shareholder, the adviser or the analyst. But it’s worth reminding ourselves that some of the ‘complexities’ of investment trusts as we see them may be the price we pay for the ‘simplicity’ afforded to the fund manager to make long-term investment decisions that should, ultimately, be in our interest.

Our adviser seminar series continues in London on 30 September, followed by events in Leeds, Birmingham, Bedfordshire and Colchester. This is supplemented by an ongoing programme of free online training.