The use of investment trusts amongst discretionary fund managers has risen since 2020 and is set to increase further, according to the results of an in-depth survey by Research in Finance.
The survey of wealth managers (DFMs), revealed that the percentage of business written in investment trusts has jumped from 9% in the first quarter of 2020 to 14% in the first quarter of 2023.
A separate study by Research in Finance found that nearly a quarter (24%) of DFMs who use investment trusts expect to write more investment trust business in the next six months, more than double the 11% who expect to write less. Just under two thirds (65%) said they expect to write the same amount.
The most common reason for using investment trusts more is the attractive discounts, with 95% of DFMs citing this. Just under two fifths (38%) want to increase their use of investment trusts to take advantage of volatility, while 30% are attracted by the strong performance of certain trusts.
Meanwhile, 27% cited a desire for gearing, while 24% want increased exposure to specialist areas and 24% cited a more favourable view of trusts generally.
The top sectors in which DFMs are planning to invest more are infrastructure (28%), private equity (21%), global (20%), UK (20%) and property (19%).
Among the DFMs who expect to use investment trusts less, liquidity concerns, reducing exposure to illiquid asset classes and a greater use of passive funds were the key drivers.
Nick Britton, research director at the Association of Investment Companies, 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.
Richard Ley, founding director at Research in Finance, commented: “Over the years that we have been researching DFMs and wealth managers, we have consistently found investment trusts featuring prominently in their portfolios. There are certainly true fans out there who particularly favour the structure over open-ended funds, but we can see usage growing 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.
“We also know 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.”
