Reader’s riposte to post-RDR wisdom

FS Adam Lewis 160 byline

It is always good getting feedback on stories, but even better when a reader pitches their very own article in response to something we have written. Step forward Craig Davidson of West-Country-based DavidsonsIFA who wanted to give his own take on the investment trust versus Oeic debate that has intensified this year in the run-up to the RDR.

As IFAs who want to stay independent post RDR will have to start considering investment trusts before recommending fund to clients, investment trust proponents have spent the past 12 or so months making their case, with many focussing on performance. Many pieces of research have been published with the conclusions often following that closed-ended funds, in the main, outperform their open-ended peers over a host of time horizons.

IFAs have often been criticised for not using investment trusts for the sole reason they do not pay commission, but for Davidson (see page 10), the reason he has favoured Oeics goes beyond this. Responding to the chorus of articles of how much better closed-ended vehicles are than Oeics, he did his own research, which showed the difference in performance of the two vehicles might not be as great as other research has suggested.

Sadly owing to space reasons Davidson’s article had to be cut down, namely where he took into account the issues of liquidity and the ability of trust’s to gear themselves. But of course gearing can work two ways and add a level of risk, which he admits for his cautious client base, is one he is not prepared to take.

The most overriding theme however is the fact that again we seem obsessed with having one versus the other, much like the active versus passive debate that always seems to rumble on. When it comes to comparing the two, much of the time you are comparing apples with pears leading to a lack of any trend. So the conclusion is, there is room for both.

However as I have previously argued the investment trust industry needs to do more to engage with the IFA industry in extolling their virtues rather than just hope money will flood in after the RDR.