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March 3, 2006 12:47 pm

Providers pull out all stops at last minute

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The countdown to the end of this year’s Isa season has begun and competition is heating up among providers vying for a slice of the last-minute rush.

The market is awash with discount deals as companies move to take advantage of renewed optimism about equity investment. One particular area that looks to have swung back into favour is investment trusts – closed-ended funds listed on the stock exchange that buy shares in other companies.

According to the Association of Investment Trust Companies (AITC), sales of investment trust Isas rose 35 per cent in the final quarter of last year compared with the previous year and demand has remained strong this year.

A number of investment trust providers are attempting to boost business by waiving fees. Initial charges on investment trusts can be higher than on standard funds such as unit trusts and open- ended investment companies as they can include set-up fees and management and dealing costs.

Investors should be quick, however, as some of the best deals expire as early as March 29.

“Many investment trusts and their managers have ongoing deals such as no initial charges or no annual plan charge, but investors will need to be on their toes because others have deadlines,” says the AITC.

Among those that have limited period offers are Fidelity International, which has waived its 3 per cent initial charge on all Isa investments until midnight on April 5; Henderson Global Investors, which has waived its 1 per cent dealing charge until March 30; and JP Morgan Asset Management, which has wiped out its 1 per cent transaction charge on lump sum investments of at least £1,000 until March 29.

Close Finsbury Asset Management has also withdrawn its 1 per cent dealing fee on its Worldwide Pharmaceutical Trust and Technology Trust until April 30.

Other providers, including F&C Management, Allianz Global Investors and Baillie Gifford are all waiving their initial charges indefinitely. But investors should still take a close look at the charging structure as this can vary considerably from one provider to the next. Some of the more traditional providers still charge a flat rate annual management charge – usually of around £30 plus VAT – and investors also face stamp duty of 0.5 per cent.

Aside from the seasonal offers, is it a good time to be pumping money into investment trusts?

Investors may be tempted by a strong recent performance. According to the AITC the average member investment trust rose 34 per cent last year compared with a 24 per cent rise in the FTSE All-Share.

Stephen Westwood, head of investment trusts at Fidelity Investments, says: “Certainly there has been a resurgence of interest as equity markets have had a good run but we would not say these products were that cheap.”

In fact, investment trusts are currently trading at historically low discounts – and a third are trading at premiums – to their underlying assets because of strong investor demand. Average discounts on investment trusts now stand at less than 6 per cent, much lower than the 20 per cent-plus figures of three years ago.

The fact that investment trusts can trade at a premium or discount to underlying assets brings an additional layer of risk as any increase in the underlying value of the assets may not necessarily be directly reflected in their price.

Westwood says the narrow discounts should not be too much of a concern, as investors should be looking to these investments with a minimum five-year view.

The AITC also emphasises that an increasing number of investment providers have introduced discount protection methods such as share buybacks to smooth any volatility.

Other advantages of investment trusts include the flexibility to stop and start contributions, as well as the opportunity to drip feed your investment on a monthly basis, which can help ride out any discount volatility.

Investment trusts are also governed by an independent board and can borrow money to maximise investment. The flipside of this ability to gear, however, is that there is also the potential for investment trusts to lose greater sums of money.

If you want to buy into investment trusts, advisers say you should build a diversified portfolio. The AITC says the global growth sector was the most popular with investment trust Isa investors in the final quarter of 2005, with the Far East excluding Japan the second most popular.

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