Balancing the volatility
She goes on to highlight that 18 different companies can boast a 30-year or longer record of increasing dividend payments. This goes some way to balance the higher volatility of the products, “You will get fluctuation but an increasing dividend is very reassuring to investors.”
Ms Brodie-Smith is clear that “the income story is dominating demand,” but she insists there is still scope for growth investment within the closed-ended universe. Private equity and emerging markets are both given as examples of sectors which have been challenged recently and present opportunities for growth.
The most popular sectors though remain Global and UK Equity & Income, but beyond them, more obscure sectors that bring out the strengths in investment trusts are attracting interest. As Ms Brodie-Smith explains, “the trend is for retail sectors but after that it is illiquid assets, such as property or infrastructure. That is different to how people thought RDR would work. They thought it would just be the big, retail-focused investment companies that benefited. They are benefiting but what’s interesting is those illiquid assets that we have a specialism in.”
This demand is further evidence of the thirst for income, she argues.
The figures have been distorted slightly this year by the launch of Woodford’s first closed-ended fund, the Patient Capital Trust. Neil Woodford is a big enough name to cause disruption in any market and investment companies proved no exception as the trust raised some £835m.
A familiar name from the open-ended investment world will not have done any harm in tempting some advisers to try closed-ended investments: “Woodford is using an investment trust because it allows him to access things – small illiquid start-up type companies – that he just couldn’t do with an open-ended fund. It is opening advisers’ eyes,” Ms Brodie-Smith argues.
Beyond Woodford’s impact, the sector as a whole is doing well though, as she identifies, “Old global trusts like Witan and Scottish Mortgage and City of London, and Finsbury Growth & Income, have been issuing lots of shares.”
She continues, “What’s interesting is we’ve got a lot less money leaving the sector. “We’ve had more issuance in other years, but we’ve got a lot less leaving. That is down to strong performance and the investment company structure offering investors what they want.”
Much of the coverage is seen to be setting investment trusts in opposition to their open-ended counterparts, but any growth in the closed-ended universe does not necessarily need to be offset by trends within the open-ended sector. As Ms Brodie-Smith adds, “This is a big enough world for both forms of investment.”
