Is the popularity of investment trusts declining?

It seems that investors are moving away from investment trusts in favor of more straightforward and frequently less expensive options

According to recent research, investment trusts in the UK are losing favor with the nation's investor base.

Investment trust ownership among UK investors has dropped to its lowest level since the company began tracking adoption in 2021, from 12 percent to 9 percent in the past year, according to the most recent investment trust report from financial consumer website Boring Money.

Based on four surveys, the largest of which included 6,000 nationally representative UK adults, the report shows a sharp decline in the percentage of people aged 35 to 54 who own investment trusts, with adoption falling from 12 percent to 7 percent over the previous six years.

According to Holly Mackay, CEO of Boring Money, "US activist hedge fund Saba created upheaval in the industry and highlighted the importance of the retail investor vote." "This, along with dwindling adoption rates, is a clear call to action for boards of investment trusts to interact with future clients and highlight the importance of trusts in an investor's portfolio."

Watch the entire video here: Given that there are more UK investors than ever before, a lower percentage of UK investors owning investment trusts does not necessarily indicate that they are less popular overall.

However, Boring Money also observed a decrease in the percentage of assets held in investment trusts on specific investment platforms, suggesting that ownership is also decreasing in absolute terms.

What is causing a decline in ownership of investment trusts?

It seems that investors prefer easier-to-use and frequently less expensive vehicles over investment trusts.

The popularity of exchange-traded funds (ETFs) has increased recently; in the past six years, the percentage of people who own ETFs has almost quadrupled from 5% to nearly 20%.

"People find it easier to compute ETFs," Mackay stated. "They have come to represent affordability and ease. Investment trusts are still viewed as complex and outdated.

She went on, "Trusts are attempting to compete with 60-page PDFs and complex explainers and this misses a key point about getting thru to retail investors." Most people want to spend as little time as possible on this, aside from hobbyists. It's about conveying important ideas in a condensed amount of space."

According to Boring Moneys research, eight times as many investors purchased ETFs for the first time in the past year as investment trusts, and 45% of current investment trust holders have held their investment trusts for ten years or longer, compared to 18% of ETF holders.

"Investment trusts have more to do to communicate their benefits to a broader investor base that has higher expectations for simple, compelling messaging and competitive price points in order to try and capture some of the growth going to ETF providers," Mackay stated.

How is the industry for investment trusts reacting?

The communication gap is being addressed by the investment trust sector.

"We need to make sure that more people are aware of investment trusts, but they have fantastic benefits for investors of all ages," stated Nick Britton, research director at the Association of Investment Companies (AIC), an industry association that represents investment trusts in the UK.

A campaign to increase investors' knowledge of investment trusts between the ages of 25 and 44 is being launched by the AIC. This is an intriguing group to target: according to Boring Money, the percentage of under-35s who own investment trusts has risen from 7% to 9% since 2021, while adoption has decreased in the age group directly above it.

According to Britton, "younger investors are especially well suited for investment trusts because their investment horizon is long and they can support exciting companies like SpaceX at an early stage of their development." Additionally, they can use gearing borrowing to increase returns and provide access to numerous market segments that are unreachable by other types of funds."