A fifth (20 per cent) of discretionary fund managers (DFM) are choosing to use investment trusts that are not on their firm’s buy list at least once a month, up from 7 per cent last year, analysis from Research in Finance has shown.

Furthermore, the proportion of DFMs who never go off their company’s buy lists for investment trusts has fallen from 37 per cent to 29 per cent year-on-year.

The research found that the increased use on investment trusts not on firms’ buy lists coincided with a period of wider-than-usual discounts for trusts, with one respondent stating: “We have seen a swathe of activity over recent months where we have sought to exploit attractive discounts across the space.”

Another DFM said they were currently reviewing the renewables investment trust space, given the discounts available and structural drivers towards their usage: “The sector has been particularly hard hit by the interest rate increases and with these set to reduce in the near term – could be a good opportunity to buy in,” they noted.

Survey respondents had an average of 26 trusts on their firm’s buy lists, but the average number of trusts they actually used with clients was half that at 13 trusts.

Trusts tended to feature in bespoke client portfolios (92 per cent of respondents) more than in model portfolios (58 per cent) or funds of funds (42 per cent).

More than a third (36 per cent) of wealth managers described themselves as ‘fans’ of investment trusts, preferring them to any other types of investment, compared to 34 per cent last year.

While the proportion of DFMs’ portfolios allocated to trusts had fallen from 18 per cent to 14 per cent, nearly a third (32 per cent) expected to write more investment trust business over the next six months, compared to 12 per cent who expect to write less and 56 per cent who expect no change.

Attractive discounts were the top reason for DFMs planning to write more investment trust business, cited by 82 per cent of respondents, although this was a reduction compared to last year when it was cited by 95 per cent of wealth managers.

Other reasons rose in importance, including the strong performance of certain trusts (up from 30 per cent to 40 per cent), increasing exposure to specialist assets (from 24 per cent to 38 per cent), and a more favourable view of investment trusts generally (also up from 24 per cent to 38 per cent).

“It is clear centralised buy lists are used extensively by wealth managers and DFMs,” commented Research in Finance CEO, Toby Finden-Crofts.

“But to take advantage of the opportunity investment trusts offer, investors are increasingly using funds which sit outside of the buy lists.

“Our research shows that it’s not only the structural benefits of the products that are appealing but the access to some interesting and less accessible markets, such as private equity, infrastructure and renewables.”

Association of Investment Companies research director, Nick Bitton, added: “At a time when centralised investment propositions are exerting more of a stranglehold on wealth managers’ investment decisions, it’s encouraging to see that many individuals are able to go off buy list in pursuit of attractive opportunities for their clients.

“Wide discounts are still by far the main reason that wealth managers are looking to increase their exposure to trusts, but this year we have seen that factor diminish in importance and other traditional advantages come to the fore, such as strong performance and access to alternative assets.”

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