The RDR is benefiting advisers in terms of wider choice and many are looking beyond unit trusts and considering other options, such as investment trusts. Research carried out by AJ Bell amongst 540 advisers who use the Sippcentre platform showed that 19% were likely to utilise investment trusts as part of their investment process.
The key things to look out for when analysing an investment trust include:
• Trust objective: income, capital appreciation or both
• Investment style: growth, momentum, value or income
• Experience and performance track record of fund manager
• Discount (or premium) to Net Asset Value
• Fees and costs
• Dividend policy
• Use of debt ('gearing')
• Use of derivatives
• Shareholder structure
• Skills of the management board
AJ Bell’s Investment Research Director, Russ Mould, commented: “Investment companies are trading near historic highs relative to the value of their underlying holdings, as the discount to Net Asset Value (NAV) is 3.6%, excluding venture capital trusts and 3i. This compares to gaps of 13% and 7% respectively at the time of the FTSE 100’s peaks in December 1999 and June 2007. The all-time low of 3.4% was reached last December, according to data from the Association of Investment Companies and Morningstar.”
Mould continued, “Investment companies remain in demand, as they offer liquidity and the ability to access a broad range of themes, but the strategy of buying at a large discount and selling at a lower one is largely played out. The lowly average discount means performance will now come from how an underlying portfolio does, and any dividends, so investors must carefully research trusts and money managers before they buy.”
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