One of the theories behind model portfolios is that they democratise investing as they allow a client of modest means access to the same investment professionals as those further advanced on their wealth journey.
This need to democratise is one of the reasons usually cited by wealth managers for their meagre allocations to investment trusts, the capacity for the share price to move rapidly risks a scenario where two clients within the same portfolio end up paying a different price for the same investment, and so have invested differently, despite ostensibly being in the same model.
Advocates of investment trusts contend that a number of investment trusts have the size and liquidity to facilitate purchases of the scale required by wealth managers, and instead cite inertia as the reason for the relatively low level of investment trust ownership by DFMS.
Our own database backs up this analysis, with the largest trusts, such as Scottish Mortgage and F&C absent from the portfolios we cover.
Anyone who has ever been close to the investment trust universe will be familiar with its old world nature. AGMs often occur in oak panelled rooms at which people repeat the same jokes about the quality of the sandwiches.
We briefly totted up the board chairs of the 20 biggest trusts in the AIC universe and found 14 white men.
Asset Allocator recently covered the report from Quilter Cheviot, which highlighted why this might be problematic for investment trusts.
To that organisation, trust boards are unresponsive to shareholder needs, clubbable and a bastion of the old boys’ network.
One of the features which investment trusts tend to highlight as a positives is the prevalence on the boards of directors of those with meaningful shareholdings in the trusts.
But a capacity to be a material shareholder in a trust is typically only achieved after one has spent a long time in our industry accumulating wealth. And on that journey they will likely have met many of the same folk they encounter on trust boards, a sense of familiarity from which perceptions of an old boys network can emerge.
(Indeed Quilter Cheviot’s research found anecdotal evidence of directors using their personal networks to recruit to boards)
It is true that investment trust boards have been more active in recent times, with mergers and manager switches more common now than previously. Boards certainly seem less patient with underperformance.
But the pace of change has been so slow that allocators could be forgiven for not noticing.
So while the rapid evolution of the discretionary investment management universe is something we all watch closely, the slower pace of change means the investment trust universe has a way to go to achieve the moral high ground.
