Chris Riley, Investment Research Manager at Rayner Spencer Mills Research.
In the aftermath of RDR, regulatory pressure continues and one particularly important question remains for advisers - ‘how can I successfully demonstrate my independence by offering a full range of retail investment products to my clients?’
The use of investment trusts forms part of the investment mix and whilst they have always been an option for advisers, the lack of access via platforms and underlying complexity has often been a deterrent. Although the issue of complexity still remains, platform access is improving and wider use by retail investors is beginning to increase demand.
In response to these issues, RSMR has expanded its research service into the investment trust market.
The RSMR process for rating investment trusts is essentially the same as that used for our open-ended funds, with some notable additional factors specific to the aspects of investment trusts.
We take account of both quantitative and qualitative measures in our evaluation process, yet we accept some factors have the ability to influence future performance to a greater extent than others. The qualitative assessment of any trust is there to enable us to have some idea of how the trust will perform in the future; whilst the quantitative element is used to assess past performance and present trust characteristics.
Once the trust has passed the quantitative assessment; qualitative analysis is undertaken to ensure that the trust has a robust fund management processes in place, a strong fund management team, a supportive business environment and strong product characteristics.
This process results in a list of RSMR rated investment trusts, which are the trusts that we feel have a robust, repeatable process and the ability to deliver strong performance in the future.
We have created a list of rated investment trusts that have met our quantitative and qualitative methodology. This list can be accessed via our website and is supported by detailed factsheets which provide our comments and opinions, plus performance data. The list will evolve over time and initially is focussed on those managers that we know from their involvement in the open-ended space.
Investment trusts could be included as part of a client’s overall portfolio, bringing diversification benefits and the potential for enhanced returns through features such as gearing. We also provide support in creating bespoke portfolios for advisory firms.
Investment trusts can widen the choice and the range of assets for clients, providing access into areas such as private equity, property, hedge funds, and infrastructure, and therefore opportunities for a wider type of client base. Investment trust managers can take a longer-term view to investing, can potentially benefit from gearing, and can provide reasonable shareholder protection through independent boards.
Rigorous research is required, as establishing the suitability of the investment trust is more complex due to gearing, liquidity issues and discounts and premiums. Our rated investment trusts represent those within the relevant sectors that meet the demands of our rigorous investment process.
One practical issue has been the lack of availability on the bigger fund platforms. Currently investment trusts are not available on the three biggest platforms, but are available on other platforms.
As with all these things the ‘devil is in the detail’ so using a trusted source of quality research is key when making your recommendations to clients.