Picking the perfect investment trust

With over 400 investment trusts available to investors, how do you pick the best one for your clients? Stephen Peters, investment trust analyst at Charles Stanley, offers his tips.

Historically, many advisers did not recommend investment trusts to clients as they did not pay them commission of some ‘kind’ for doing so.

This is relevant as it has meant that the provision of information and data for the sector has historically been far less than seen for open- ended funds.

Fund management groups had little incentive to pay for advertising, data websites and marketing trips for their closed ended funds as they simply didn’t make as much money as they did by spending money on their open-ended fund business.
In recent years, this has changed.

Alongside the share prices and occasional comment in the daily newspapers, a large number of websites now cover the sector, and provide a wide variety of information on prices, discounts, gearing and holdings.

All credible management groups provide factsheets and websites for their trusts.

The sector has a vibrant sellside analyst community producing regular datasheets, manager reviews and trading ideas.

There is no excuse now to say that the reason you didn’t invest in a closed-ended fund is that you didn’t know what was going on.

While fund sales teams still do not have huge incentives to discuss investment trusts with advisers, asset managers are already wrestling with how that should change in the coming years.

As an adviser, how should you select your preferred shortlist of closed-ended funds? The simple solution is to use the skills of a specialist, who spends their whole working life looking at the sector.

Few people have the time or inclination to know all about how much a trust pays for its gearing arrangement, or its policy on controlling its discount or premium.

Such specialists will keep a preferred list of trusts, have access to the key sellside names and have access to the dealers who know how to deal in the sector efficiently.

For those who do not want to use a dedicated resource, it is possible to pick the trusts yourself – but be careful.

In theory, selecting a trust should be no different to selecting a similar open-ended fund, and often are run by the same manager.

Look at the sector you want to invest in, look at what is available, and then look for a manager who uses an investment approach that

you are comfortable with. If a manager runs an equivalent trust to his or her open ended fund, consider it very carefully.