11 February 2020
Readers of this blog will be all-too familiar with the implosion of the Neil Woodford UCITS funds and the ramifications thereof for Mr Woodford himself (none, so far, at least, for that worthy individual), for the de facto promoter of his funds (Hargreaves Lansdown, for whom trouble surely is a-comin’) and for the benighted Woodford investors (for whom help is on the way, as the ambulance-chasing law firms, circling vulture-like, would have them – and us – believe).
The ramifications of Woodford’s maxima culpa are in all probability mid- to long- term, and have yet to manifest themselves. But what of the immediately-apparent ripples that radiate from his mismanagement of £5bn of other people’s money?
On the same day that Nick Train is reported as defending his unchanged investment strategy (illiquid holdings small; within UCITS rules; and nowhere near as extensive as Woodford’s), @FETrustnet reports BlackRock’s views on how retail sentiment – and cynicism – is driving inflows into investment trusts: https://www.trustnet.com/news/7461736/how-retail-investors-are-changing-the-investment-trust-space
Enter the young, “savvy” investor
According to BlackRock’s Melissa Gallagher, retail investors these days are doing their research and placing less reliance on investment advisers. The march of technology is a strong tailwind for this trend, with the advent of apps that enable customers to make an investment in a financial product almost as easily as placing a bet on a horse.
The advance of the apps is to be welcomed, not because they offer absolute salvation from the overpaid, overindulged and deeply conflicted investment “advisory” industry, but because they now provide healthy competition to the Vauxhall motorcar- driving reps of the aforementioned industry, which purports to be advisory in nature but which in reality is all about commission-based sales of financial products, irrespective of customer suitability.
Vauxhall Man at Work (probably for Hargreaves Lansdown)
Voting units: Good or Bad?
BlackRock’s Gallagher mentions votability of units in investment trusts as being overall a positive trend amongst “savvy” younger investors, but which can cause problems come AGM time. A feature of which is worthy of consideration by industry players, legislators and our (so-called) regulator. We are all in favour of investors being able to vote with their feet by redeeming their investments when it suits them (gates imposed by the manager are another thing, which we will consider separately; suffice to say that we consider them sometimes to be a necessary evil), but giving investors a right to turn up annually and mouth off? Don’t think so. Investment trusts would be more attractive to managers and passive (no pun intended) investors alike if the units were non-voting, like shares in UCITS (one of the few remaining attractive features of that tired and much-abused European model).
True liquidity (UK style)
Another attraction of investment trusts is the secondary liquidity that they afford to investors. We have all looked agape at how the much-touted “daily liquidity”of UCITS funds turns into so much hot air when the fund’s portfolio investments are fundamentally incompatible with real-time market valuation and disposability (Woodford, anyone?) – the listed nature of UK investment trusts provides a reassuring glow for small investors wary of manager impropriety and worried about the overbearing propensity of larger, institutional investors to barge their way to the exit when the redemption shutters are coming down (Woodford, anyone?).
The continuing appeal of investment trusts is to be welcomed. And is particularly germane for BlackRock to be promoting right now, given the failure of the (so-called) actively-managed fund, the fallout of the Woodford saga and the corresponding rise of the passive fund. And, not least for BlackRock, the unrelenting advance of Vanguard into the UK retail investment space.
Matthew Feargrieve is an investment funds consultant. You can read more of his blogs here: https://matthewfeargrieve.blogspot.com/
And see his YouTube channel here: https://www.youtube.com/channel/UCTgBcrcxZGxzzcGj3OnMq_A