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More wealth managers turning to investment trusts due to attractive discounts


Discretionary fund managers (DFMs) in the UK, also known locally as wealth managers, have increased their usage of investment trusts since 2020 and those who use trusts are looking to add to their exposure.

Among all DFMs surveyed by Research in Finance, the percentage of business written in investment trusts has increased from 9% in Q1 2020 to 14% in Q1 2023. This was up from 12% in the previous survey covering Q3 2022.

In a separate study by Research in Finance of DFMs who use investment trusts, 24% expect to write more investment trust business in the next six months, 11% expect to write less, and 65% expect to write the same amount.

Investment trusts offering wealth managers attractive discounts

Of those who expect to use investment trusts more, the vast majority (95%) give attractive discounts as a reason. Other reasons DFMs are expecting to increase their use of investment trusts include the opportunity to take advantage of volatility (38%), strong performance of certain trusts (30%), desire for gearing (27%), increasing exposure to specialist areas (24%), and a more favourable view of trusts generally (24%).

Among the smaller number expecting to use investment trusts less, the reasons most cited include liquidity concerns, reducing exposure to illiquid asset classes, and greater use of passive funds.

The top sectors in which DFMs are planning to invest more are infrastructure (28% of respondents who named a sector), private equity (21%), global (20%), UK (20%) and property (19%).

Nick Britton, Research Director at the Association of Investment Companies (AIC), said: “These findings suggest that some wealth managers are increasing their exposure to investment trusts because of – not despite – widening discounts. The infrastructure sector, for example, which trades on a 19% discount, is the top sector on wealth managers’ shopping lists. History suggests that discounts at these levels don’t persist forever, and that periods of negative sentiment towards investment trusts can prove to be a good time to invest for the long term.”

Research in Finance, said that over the years they have been researching DFMs and wealth managers they have consistently found investment trusts featuring prominently in client portfolios. There are certainly true fans out there who particularly favour the structure over open-ended funds, but Research in Finance said they can see usage grow in the wider wealth manager space too.

The current discount levels appear to have driven allocation to investment trusts upwards alongside a larger allocation to direct equities which has been a result of the attraction of specific stocks.

Research in Finance said that investment trusts’ ability to use gearing is considered a positive when the conviction is especially strong for an asset class, geography, or a specific trust.

A note on the data

The figures in this release are from regular surveys conducted by Research in Finance. This is the first time that the headline findings from these surveys have been released publicly.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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