Investment Trusts: A versatile vehicle with a wide range: Alison Eadie consults the managers on the merits of their products

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The Independent Online
INVESTMENT trust management groups are becoming much more market-oriented. The introduction of savings plans and scrapping of limits on collective Personal Equity Plans in 1992 widened the appeal of investment trusts to smaller investors.

The next big opportunity is disclosure of charges on financial products, which comes into force from January. The historically low charges of investment trusts should show them up in a favourable light, particularly against traditional life insurance products such as endowments, which pay high commission to salesmen.

Investment trust managers are now targeting consumers to persuade them of the merits of investment trusts for mortgages, retirement savings and school and university fees planning. Fleming Investment Trust Managers is working on a mortgage package with life assurance and is 'actively looking' at a personal pension product. Daniel Godfrey, marketing director, says investment trusts are ideal as long-term savings vehicles because they offer lower charges than life products or unit trusts; the full range of market and risk profiles; and the ability to gear up or borrow money to improve long-term returns.

As charges and commission become transparent, the good performance of investment trusts will stand out and become a stronger selling point.

Foreign & Colonial is so far the only manager to offer a personal pension and free-standing additional voluntary contributions plan, whereby employees can top up their company pension scheme. After its launch in February to existing shareholders in the Foreign & Colonial Investment Trust, a wider advertising campaign is imminent.

Craig Walton, marketing director, said the choice would soon be expanded from just the F & C Investment Trust to other F & C trusts.

Because of the complicated tax advantages of pensions, they can only be bought through recognised pension providers. Investment trust managers are not recognised. The Association of Investment Trust Companies is lobbying Government to try to achieve equal status with unit trusts, which are recognised.

F & C linked up with Provident Life, a recognised provider which does the administration. Charges have been held down to a pounds 100 initial fee, an annual fee of pounds 50 from year two and a 0.5 per cent annual management charge. These costs are in addition to the underlying investment trust charges.

Personal equity plan mortgages are beginning to take off, but unit trusts have so far scooped the lion's share of the business. Dunedin Fund Managers in Edinburgh has been promoting its investment trusts as Pep mortgages to clients since July 1992, but in the last few months has been targeting independent financial advisers (IFAs). Barbara Hogg, investor relations manager, says enquiries are coming in at the rate of five to 10 a week. The Pep mortgage works the same way as an endowment or pension mortgage, with an interest-only loan from a bank or building society and the capital paid off by investing in a Pep. The exemption from income and capital gains tax in a Pep helps the capital grow faster.

Dunedin's quotation service provides illustrations of how much would be needed in monthly contributions to a Dunedin Pep to pay back the capital over the chosen term of the mortgage. To arrive at pounds 50,000 after 20 years, for example, the mortgage holder would have to pay pounds 65 a month assuming 12 per cent growth, pounds 90 assuming 9 per cent growth and pounds 124 assuming 6 per cent growth. Both Dunedin and Ivory & Sime, another Edinburgh-based investment trust manager, are packaging their investment trusts into vehicles for saving for children. I & S will next month launch its PREP, recommended particularly for saving for children's university expenses.

The PREP investor - parent, grandparent or friend - has to sign a declaration that she is acting only as nominee for the child. The investment then benefits from the child's capital gains tax allowance of pounds 5,800 a year and annual income tax allowance of pounds 3,445 a year. Tax at 20 per cent deducted at source from dividends can be reclaimed.

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