David Prosser examines data suggesting that older investors are more likely to hold investment companies.
More evidence of the wisdom of the old advice about respecting your elders: new data suggests older investors are significantly more likely to have holdings in investment companies than their younger counterparts.
According to a study from CoreData Research, amongst owners of stocks and shares individual savings accounts, 57% of those born before 1945 have investment company shares in their Isas. The figure falls to 40% across all age groups – and to just 17% amongst millennial investors.
What conclusions should we draw from this breakdown? Well, the data appears to suggest that some longstanding perceptions about whom investment companies suit continue to dominate. After all, we have long been told that the different structure of investment companies compared to open-ended funds means they’re more appropriate for experienced investors with larger sums to invest.
In reality, of course, this argument doesn’t stack up. Investment companies have consistently outperformed other types of fund, which is hardly an argument for avoiding them if you’re just starting out in stock market investment. They have often been priced more attractively, another appealing attribute for inexperienced investors. And as for risk, they have provided excellent protection in areas such as property and unquoted equity in recent times, when other types of fund very conspicuously have not.
In this context, CoreData’s findings are a little disappointing. It is disheartening to see that many younger investors apparently still feel that investment companies are better suited to their more experienced peers – and that only in older cohorts have a majority of investors have embraced the sector.
Still, fans of investment companies should not feel too glum. What the figures also show is the degree to which the sector is now punching above its weight. It is worth pointing out that investment companies currently account for only 8% of all collective investment vehicles available to investors in the UK. With that figure in mind, even the relatively small 17% of millennials invested in the sector looks much healthier – and the 40% penetration rate across the whole sample might be regarded as a positive triumph.
Indeed, it is easy to forget how far investment companies have come in such a short space of time. It is only seven years since the introduction of the Retail Distribution Review (RDR), the landmark reforms that banned financial advisers earning commissions when recommending funds. Since this practice had always been off-limits in the case of investment companies, they rarely got a mention from intermediaries; for a long period, this was a forgotten world for all but enthusiast investors and institutions.
Since RDR, the investment companies sector has launched a concerted fightback, trading on its strong points – outperformance, secure income, governance structures – to attract a broader audience. Retail ownership of many funds has increased significantly. Financial advisers have steadily come on board.
There is plenty more work to do. One revealing data point in CoreData’s analysis is that while 47% of investors who take decisions without recourse to financial advice have investment company holdings, this figure falls to 34% amongst those who do use an adviser. That suggests too many advisers are still suggesting their clients steer clear of investment companies – or just not mentioning them as an option.
Nevertheless, the investment companies sector can be proud of what it has achieved since RDR. And in time, of course, the millennials will lean from their elders and betters.