Phil Wickenden: Investment trusts get a bad press – but are they worth a look?
By Phil Wickenden
The proven way to add value is to do extremely difficult work (well). That seems obvious, right? If you do something that is valued but scarce because it is difficult, you are more likely to be in demand and to be compensated fairly for what you do.
The only thing about “difficult” is that – you guessed it – it is not easy.
Yet it is a lack of knowledge (57 per cent of advisers) and perceived complexity (36 per cent of advisers) that has discouraged many advisers from using investment trusts to date. In other words, the difficulty is both the opportunity and the sticking point – as it so often is.
One of the main advantages of investment trusts is that they can borrow money against the assets the portfolio owns. Gearing, hence, can amplify both positive and negative (when the fund manager gets it wrong) returns.
Dividend reserves are another advantage in an investment trust’s armoury. Statistically, investment trusts are cheaper and produce better long-term performance than their Oeic or unit trust cousins. That said, only 29 per cent of advisers admitted they routinely consider (where appropriate) investment trusts and 26 per cent said they would not recommend them under any circumstances.
We all make choices, even when we do nothing
Encouragingly (on the face of it), 45 per cent said they would look to use investment trusts in the next three years as availability on platforms improves markedly. “Look to use”, however, is as pretty non-committal as it gets, and I would wager platform availability alone will do little to improve the level of engagement without a bit of elbow grease.
The lack of understanding or the choice not to become better informed is perhaps the real issue at hand. Because it is a choice. We all make choices every day. Some choices we make with purpose and some we make by not taking action – simply by choosing to go with the status quo.
Habits are a choice. Work is a choice. Reputation is a choice.
As American author Seth Godin says: “No one can be responsible for where or how we each begin. What we choose to do next, though – how to spend our resources or attention or effort – this is what defines us.”
The bottom line is this: your life is the outcome of the choices you make. If you do not like or question the outcomes you are currently experiencing, make better choices.
Phil Wickenden is managing director of Cicero Research