The Retail Distribution Review (RDR) is unlikely to trigger a wave of demand for investment trusts, despite hopes that the regulatory overhaul will have a significant impact on the sector, according to a survey.
As RDR bans commission on investment products, trusts – which do not pay intermediaries for sales – are expected to receive more attention as advisers will be forced to look beyond the open-ended funds they currently favour.
But in the poll of delegates at a recent conference on investment companies, only 11% of respondents thought the impact on demand would be ‘considerable’, while 36% believed there would be have marginal or no impact.
‘As this audience clearly has some interest in investment trusts, given their attendance, this could be taken as a worryingly high response,’ wrote analysts at broker Winterflood, which hosted the conference.
The survey highlighted liquidity as a perceived problem area for the sector, with 82% of respondents saying it was a significant issue for them. And only 6% of those polled believed that mechanisms to control the discount of share prices to trusts’ net asset values had proved effective.
According to the survey, taken of directors of trusts as well as investors in them, the majority of respondents thought the impact of RDR would be dependent on individual trusts.
‘Broadly we think there will be an impact, and we think probably it’s likely to be seen in the larger, more liquid investment trusts that have got solid investment performances – funds like Scottish Mortgage and Templeton Emerging Markets,’ said Kieran Drake, analyst at Winterflood.
Gavin Haynes, managing director of Whitechurch Securities, agreed that the ban on commission was unlikely to see a ‘massive shift’ towards the take-up of investment trusts.
‘I think it’s certainly going to be crucial that any IFA who wants to remain independent can prove that they are looking at the area,’ he pointed out,' he said.
But Haynes added that there were still barriers to running investment trusts on an advisory basis, such as how close they have to be monitored regarding discounts, premiums, gearing and liquidity.
He added: ‘It works for us because we do it on a discretionary basis, so we are looking at these investments every day.’