Purchases of investment trust shares in the first half of 2022 reached the highest ever level for a six-month period, with funds offering an element of ‘capital preservation’ overtaking the pure growth offering of Scottish Mortgage Investment Trust PLC (LSE:SMT) and F&C Investment Trust PLC (LSE:FCIT) (FCIT) for the first time in five years.
Investment trusts as a whole saw continued strong demand on financial advisers and wealth manager platforms in the second quarter after a strong start to the year, according to data from the Association of Investment Companies (AIC).
Some £361mln was invested in buying investment trust shares in the second quarter, 20% higher than a year ago, and the second-highest quarterly figure on record, with strong net demand of £151mln the second-highest figure ever recorded.
In the first half of this year, roughly £700mln has been spent on closed-ended investment companies, the highest level of purchases ever in a six-month period.
The resilient demand for investment companies in the quarter of the year bucked a broader decline in total platform purchases, which were down 5% year-on-year to £48.93bn, with Investment Association data showing fund outflows for the past six months.
Global growth loses crown
After 20 consecutive quarters as the most popular AIC sector, the 'global' sector, which is led by FTSE 100 stalwart Scottish Mortgage and blue-chip returnee FCIT, lost its crown.
It was overtaken by the 'flexible investment' sector, which is home to investment companies that can invest in a range of different asset classes, so allowing them to not just invest in equities but also, bonds, property and private equity.
This sector, which includes trusts such as RIT Capital Partners (LSE:RCP), Capital Gearing Trust PLC (LSE:CGT), Caledonia Investments (LSE:CLDN), Personal Assets Trust (LSE:PNL) and Ruffer Investment Company Ltd (LSE:RICA), accounted for 17% of purchases in the past quarter.
Many of these trusts offer a capital preservation or inflation protection theme and so, amid all the worries about inflation and market turmoil, have tended to dominate the most-bought lists for investment platforms this year.
This was "noteworthy", said Nick Britton, head of intermediary communications at the AIC. "This sector contains investment companies that can invest in a range of assets, including a few well-known ‘capital preservation’ mandates. It doesn’t take too much imagination to guess why these might have been popular this year."
He noted that some of these investment companies – such as Capital Gearing, Personal Assets and Ruffer Investment Company – "have a primary goal of preserving investors’ capital, so they have a natural appeal to people who are worried about choppy or volatile markets."
"They work by diversifying their portfolios across a range of different assets that perform differently – so one goes up when another goes down. The aim of this is to smooth returns over time and avoid large losses, though returns may not be so high in bull markets," he added.
However, he noted that not all investment companies in the flexible investment sector have this goal of capital preservation.
The global sector, which contains Scottish Mortgage, FCIT, Alliance Trust PLC (LSE:ATST), Monks Investment Trust PLC (LSE:MNKS), Witan Investment Trust plc (LSE:WTAN) and Bankers Investment Trust PLC (LSE:BNKR), fell to second place in the second quarter with 13% of purchases.
Also popular in the past quarter were UK smaller companies, with 7% of purchases, UK commercial property (6%), UK equity income (5%) and infrastructure (5%).
Britton said the level of demand for investment companies during what have been difficult months for stock markets, “shows that advisers and wealth managers are taking a long-term perspective."
“Historically, market downturns have been great times to buy investment companies, though that’s not to say things won’t get worse before they get better,” he said.
He noted that the strong showing for sectors trading on wider-than-usual discounts, such as UK smaller companies, “suggests that some buyers may have been shopping for bargains”.