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Whether or not you think more investors should be buying closed-ended funds, it surely makes sense for them to have the option?

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20 February 2015

David Prosser discusses the ‘big three’ platforms and availability of investment companies.

It looks as if the investment company sector is going to be in Neil Woodford’s debt. The star fund manager’s decision to use a closed-end structure for his forthcoming fund launch - his Patient Capital Trust is expected to list in April – was a serious vote of confidence in the sector. And now Mr Woodford is forcing the hand of those fund supermarkets that have been slow to give investors access to fund platforms.

That represents a breakthrough for the investment company sector. It has now been more than two years since the Retail Distribution Review put an end to commission bias and gave investment companies an opportunity to take on open-ended funds on a level playing field. During that time we have seen independent financial advisers embrace the sector, with sales of investment companies through intermediaries climbing rapidly.

The platforms, however, have been far slower off the mark. In particular, the three largest fund supermarkets, Cofunds, FundsNetwork and Old Mutual Wealth still haven’t got round to offering investment companies through their platforms (or at least not those companies managed by other firms, since Fidelity offers its own funds through FundsNetwork). Investors using these services to hold their portfolios and make new investments have effectively been denied access to the closed-end sector.

This isn’t just wilfulness on the part of these platforms – putting an investment company offering on their platforms requires a certain amount of administrative work and reconfiguration, because of the different structures of closed-end funds. Nevertheless, the platforms have been dragging their feet for far too long. Other fund supermarket services have managed to get investment company dealing services up-and-running without too many problems, which proves it isn’t really so difficult to do so. The big platforms, however, have chosen to exclude their investors from some of the UK’s most attractive collective funds.

That brings us back to Mr Woodford. FundsNetwork, for one, is clearly conscious that its customers are going to ask some difficult questions if they can’t access Patient Capital via the platform. It is therefore promising to make the fund available – and having offered access to one externally-managed investment company, it will then extend the range.

”We cannot confirm timings at this stage but in announcing our intention to support this initial public offering we are signalling our clear intention to drive this forward as quickly as we can,” a spokesman for FundsNetwork said this week of its plans to get investment companies on to the platform.

No word yet from Cofunds and Old Mutual Wealth – but they presumably will also be feeling the pressure to provide investors with access to one of the biggest fund launches of the year. And if they can find a way to offer dealing in Patient Capital, there’s nothing to stop them offering a much broader range of investment companies too.

That’s good news. Whether or not you think more investors should be buying closed-end funds, it surely makes sense for them to have the option to do so. When the most popular platforms are not offering that choice, investors are worse off for it.

What the analysts say this week

Ewan Lovett-Turner, Numis Securities

“Gabelli Value Plus+ Trust started trading on the main market of the London Stock Exchange on 19 February, having raised gross proceeds of £100.1m via a placing and offer for subscription. It is a UK domiciled investment trust, with a mandate to invest in US equities on an all cap basis. Issue costs were capped at 1 per cent and the initial net asset value will be 99p per share.

“We regard Gabelli’s fund raising as a considerable success, even though the gross proceeds of £100m compare with a target of up to £250m. Gabelli has a good reputation in its US funds and there has been a lack of investment trusts focused on the US market. Other than JPMorgan American , which has a mainstream large cap focus, there are just two income focused funds - North American Income and BlackRock North.American Income - as well as two smaller company funds.”

Mick Gilligan, Killik & Co

“Shareholders of the British Assets Trust will be asked to vote on a number of changes to the investment policy at the end of this month, as the stewardship of the trust is passed from F&C to BlackRock Fund Managers. Following a period of shareholder consultation, it is expected that proposals will be passed to change the investment policy from the current global equity income mandate to a flexible multi-asset approach invested on a tactical asset allocation basis. The new strategy will target greater capital stability over the medium-term than an equity-only strategy and aim for a return of UK Consumer Price Index plus 4 per cent per annum over a five- to seven-year cycle.

“We believe the new multi-asset investment strategy will become an interesting and differentiated constituent of the London-listed closed-end fund sector following the shareholder vote on 26 February and will appeal to income seeking investors looking for a low volatility return profile. The relative low-cost and improved discount control policy are further positives.”

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