Bolton, former manager of Fidelity Special Situations and current lead of the Fidelity China Special Situations IT, says he personally likes using closed-ended funds and thinks they are simple enough for savvy private investors to understand. "For sophisticated investors, I think they’re ideal," said Bolton (pictured).
"Maybe not for the beginner, but for those who can do the proper research, the advantages you can get from gearing and discounts are very significant."
"I hope that more investors will look at them as a result of RDR, I really do."
Investment trusts have historically been overlooked by financial advisers as they don't pay any commission. However, with commission now banned and IFAs required to at least consider them as a result of RDR, Bolton and many more industry experts anticipate that their popularity will continue to grow.
Trusts have many advantages over their open-ended rivals, such as lower costs and the ability to gear [borrow], which have contributed to their superior performance over the long-term – a trend examined by FE Trustnet in a series of studies.
As well as the Fidelity China Special Situations trust, Bolton has headed up two other closed-ended funds during his illustrious career – Fidelity Special Values IT and Fidelity European Values IT.
He says the structure suits his contrarian style and that the use of gearing has helped his performance over the long-term.
Bolton adds that another significant advantage of investment trusts is their closed-ended structure, which means that the manager is not affected by inflows or outflows.
"When it came to deciding how to frame Fidelity China Special Sits, we had a number of options," he said.
"We looked at the hedge fund route, but we wanted all types of investor to be able to get access to it, so that was an immediate no."
"We also looked at the open-ended route, but we didn’t want to be affected by short-term gyrations in the market. We knew we’d have a lot in small caps and didn’t want to be forced sellers if sentiment towards China suddenly declined."
"We also wanted to be geared. That hasn’t worked out for us all the time, but on a long-term view I see gearing as a big advantage."
Performance of trust and benchmark since launch
Source: FE Analytics
Bolton acknowledges that discount volatility "can be a pain" for fund managers, but says this can be alleviated with an active buy-back programme. For investors, he says buying an investment trust on a heavy discount is a good way to boost returns.
Dale Nicholls (pictured), who will take over the China trust from Bolton when he retires in April of next year, is also a big fan of investment trusts.
"The structure is a big attraction and one of the biggest reasons why I wanted to take it on," said the manager. "It gives me the opportunity to short stocks, and I can also use gearing and invest in unlisted companies, as Anthony has done since he has run the trust."
Bolton currently holds privately owned internet company Alibaba Group in his top-10.
Annabel Brodie-Smith, communications director of the AIC, says that the industry association is seeing greater interest from retail investors.
"We’ve definitely noticed a real increase in interest since RDR came into effect," she said. “We redesigned the AIC website with RDR in mind, focusing on retail investors and financial advisers."
"Since the website was re-launched in March 2013, there has been a 25 per cent increase in traffic, reflecting the interest of these new audiences."
"In 2012, we trained a total of 813 advisers. In 2013 to date, we’ve trained over 1,300 advisers interested in extending their knowledge to cover closed-ended funds."
"We’ve also been able to measure the real impact of RDR on investment companies in the form of a report using Matrix Solutions’ Financial Clarity. Data shows a 53 per cent increase in adviser and wealth manager investment company platform purchases in the first six months of 2013 in comparison to the same period in 2012."
However, Charles Cade, analyst at Numis Securities, says it is difficult to measure whether RDR has had an impact on private investor demand for investment trusts so far.
"The demand for new products has come from multi-managers and private wealth managers rather than retail customers," he said.
"There has been a stronger demand from the retail side for existing trusts though, particularly equity income, where discounts have come in very strongly. There have been more trades on platforms like Transact, for example. How much that is down to RDR is questionable though." Cade (pictured) says there has probably been an indirect RDR effect, but does not think the changes in regulation have directly helped the sector.
"We’re not seeing a lot of demand from IFA platforms, and I don’t think that you’re going to see the future demand for trusts coming from this area," he said. "We haven’t seen a lot of activity from the likes of Cofunds and Skandia."
"What you have seen though is greater coverage of trusts in the press, helped by the strong performance of them over the past five years or so, which has perhaps made them more visible for private investors."
Cade adds that RDR has encouraged a lot of trusts to make their charging structures more transparent, which could again lead to an indirect uptick in demand.
Click here to view a study by FE Trustnet looking at which investment trusts are set to benefit from RDR.