Wealth managers are increasing clients’ exposure to investment trusts, with attractive discounts, exposure to specialist assets, and strong performance the key factors driving investment.

A Research in Finance study of discretionary fund managers (DFM) who use trusts found that 26 per cent were looking to increase exposure to investment trusts over the next six months.

Nearly two thirds (63 per cent) expected to hold investment trust exposure steady over the same period, while 11 per cent were looking to reduce exposure.

Of those looking to write more investment trust business, attractive discounts were the top reason, cited by 68 per cent.

This was followed by the desire to increase exposure to specialist assets (51 per cent) and the strong performance of certain trusts (39 per cent).

Other reasons included a generally more favourable view of investment trusts (27 per cent), the desire for gearing (27 per cent), and to take advantage of volatility (24 per cent).

Another study from Research in Finance, which surveyed wealth managers and institutions, also found that investment trusts remained DFMs’ favoured vehicle for accessing private assets.

More than 9 in 10 (91 per cent) said they would use investment trusts to gain access to private markets, while 23 per cent would use semi-liquid funds like long-term asset funds (LTAF) and 14 per cent would use illiquid funds such as limited partnerships (LP).

Financial advisers and high net worth advisers were also more likely to use investment trusts than semi-liquid funds or illiquid funds, while institutional investors were more likely to favour illiquid or semi-liquid funds over investment trusts.

“Our data shows that wealth managers continue to value investment trusts as a means of gaining exposure to private assets such as property and private equity,” commented Research in Finance research manager, Oliver Crawford.

“While LTAFs are relatively new, investment trusts have been an important part of the UK’s investment landscape for over a century. And unlike LTAFs, investment trusts offer daily dealing, which is a key advantage in the eyes of wealth managers when considering which vehicle to use for accessing private markets.”

Association of Investment Companies research director, Nick Britton, added: “Investment trusts have retained their role as the Heineken of investment vehicles, reaching parts of the market that aren’t easy to access in other ways.

“Wealth managers like the way they provide flexible and convenient exposure to private markets and more specialist equities, and these attractions are enhanced by wide discounts, which is still the top reason many are looking to increase their investment trust exposure.

“In contrast, semi-liquid funds offer exposure to private markets at or close to net asset value, typically with lock-in periods and redemption limits. This research suggests that this combination of characteristics is more appealing to institutional investors than it is to wealth managers and advisers.”

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