Money: Investments

When ordinary investors think of putting their money into a collective fund, are they likely to think first of unit trusts, or investment trusts? For years, the popular answer was unit trusts. They do after all have one great advantage over investment trusts, which is the ability to advertise their funds directly to the public. Such ``off the page'' selling in newspapers (such as this one) and on posters has been an important component in their long-standing popularity among retail investors.

Investment trusts are in many ways more flexible vehicles for investing. They are particularly well suited to meet the needs of individual private investors, and often cheaper. Yet, denied by the regulators the chance to tap the market directly with advertisements, they have always had to work much harder at attracting attention from the public. It is only in the last 10 years that they have begun to get their act together on the marketing front in a serious way. The old saw that investment trusts are bought, while unit trusts are sold, is less true today than it was.

Investment trusts, historically, were often too snooty for their own good about their more plebeian rivals in the unit trust field. Many paid a price for their reluctance to engage in what they saw as ungentlemanly, overty commercial practices of their unit trust rivals. They suffered it, most blatantly, in the shape of a share price which frequently stood at a substantial discount to net asset value. A business that overnight can turn pounds 100 subscribed by an investor into something worth no more than pounds 80 when quoted on the stock market has an obvious public relations problem. When the discounts of 20-30 per cent were the norm, many doubted if the investment trust sector could in fact survive.

Now all that has utterly changed, and a new and terrible beauty - at least in the eyes of the marketing men - has been born. Not only are most investment trusts now fully attuned to the importance of promoting themselves. But leading unit trust providers such as M&G, seeing how the investment trust sector has pulled itself together, have even started to cross codes. M&G's new peppable equity investment trust, launched this year, has proved to be one of the most successful of all retail product lauches in recent years, pulling in well over pounds 200m of public funds.

This week I have been catching up with the views of someone who has seen as much as anyone of the ups and downs of the investment trust movement, since the days when they languished in unloved and not undeserved obscurity. Robert Adams, now 56, started life in pre-Big Bang days as a jobber in investment trust shares, moved on to analyse them for a broking firm, and now does mainly corporate finance work in the investment trust sector for the big securities firm SBC Warburg.

Warburg is a big maket-maker in investment trust shares. As such it deals mainly with the big investment institutions, the pension funds and insurance companies. Yet it is smart enough to see that it has a vested interest in promoting trade in investment trusts from retail investors too. Although no commission is directly at stake, Mr Adams publishes a regular guide to investment trusts for private investors under the Warburg logo (available to readers from the firm, at a cost of pounds 15). One of its most useful features is a list of local stockbrokers, with the names of their investment trust specialists attached.

Mr Adams himself has been a regular investor in several of the now popular savings schemes offered by the bigger investment trusts (``about the only way, as a professional in the City, to buy shares without having compliance problems''). He is right to say that they are still an ideal vehicle through which the private investor with a few thousand pounds to save each year can take the plunge into the stock market in a controlled, relatively risk-free (and cheap) way.

Like me, Mr Adams seems to retain a soft spot for the old-fashioned, penny-scrimping investment managers of the old school, such as the splendid Allliance of Dundee, who remain wary of spending too much on marketing. But there is no gainsaying that it is the trusts with the best brand names, the healthiest savings schemes and the biggest marketing departments that now tend to have the smallest discounts. The new M&G trust, for example, Mr Adams points out, is set to attract something like pounds 14m of new money in its first year through regular savings schemes and Pep investors reinvesting dividends. Such regular demand naturally helps to keep the share price up.

Now in its fifth year, the Warburg guide offers ordinary investors an ideal short cut to finding your way around a sector that has come to proliferate in the last few years with a daunting array of ever more complicated offerings, some with bizarre - not to mention Byzantine - share structures. There are now some 600 different types of paper traded in the investment trust sector. Mr Adams has this year added a new bell and whistle to his report, in the shape of some simple risk ratings for each of the investment trust listed. The idea is to classify both individual investment trusts and their sectors into high, medium and low risk categories.

There is nothing scientific about the way Mr Adams does it. He freely admits that his rankings are entirely personal, based on his years of experience in following the business, not on rocket science. There are no explicit recommendations for specific trusts, but Mr Adams is clearly a fan of long-established managers who have been around a long time, stick to what they know they can do and - for choice - have most of their own money tied up in the fund they are managing.

He is a fan of Michael Hart, the veteran investment manager of Foreign and Colonial, Michael Moule of Bankers Trust and Ian Rushbrook, who runs Personal Assets in Edinburgh. Among the specialist sectors, he thinks property investment trusts are essentially a waste of time for most private investors and is wary of specialist European trusts. For those interested in investing in emerging markets, he advises private investors to stick with fund managers, such as Genesis, who specialise in the area.