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I will happily use the right IT at the right time for appropriate clients but I feel that many advisers are still smarting from the splits debacle and will find it hard to trust IT companies. Apart from splits the downside in IT share prices during the 2008/9 crash demonstrated quite clearly the additional risk of ITs and the truth that they all experience "geared" returns (compared to their own NAV) and have to be treated with care.

Of course, when the next boom comes, IT share prices will move to a premium to NAV and the returns will look spectacular, everyone will forget the past and dive into ITs at exactly the wrong time ready for the next crash and magnified losses.

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Uncomfortable Reading For Investment Trust Companies

The reason ITs have fallen so far behind UTs might well have something to do with the almost total loss of trust in the IT sector just a few years ago when the sector was launching and succesfully promoting funds with exceptionaly high gearing which resulted in millions of man hours being lost by IFAs carrying out the resultant FSA review and, for many, significant client losses and compensation.

Whilst ITs have their place for very long term investment, or short term directional speculation, it has to be accepted that the share price valuation will always be more volatile than an equivalent UT because of the fact that "investor sentiment" is an integral part of that share value rather than just NAV. This additional "sentiment volatility" can be extreme at times, especially during significant market downturns, and will exagerate losses for those who sell and percieved losses for those who do not. For this very reason, with the FSA finally twigging that risk profiling is really about client comfort and level of acceptance of loss, I would suggest that ITs have a lesser place in the market than ever before.

As for commission being a driver of ITs failure to attract funds I would point out that the majority of investment IFAs use wraps where their income is divorced from commission and they could just as easily use ITs if they had trust in the managers and thought them suitable for their clients

I am not "anti" ITs, for the right clients and at the right time in the market cycle, I lament the loss of honest, well managed/structured Zeros and Capital shares as a tool to help my clients acheive their objectives.

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This is one of the old chestnuts that keeps coming around!
As comments have referred to, the effect of gearing means that generally ITs do better in bull markets.
At MPL we are fans of them both but you have to understand exactly what are buying- for instance there are some fantastic ungeared ITs. There are buying and selling issues, especially as your deal size increases.
There are not dis-similiar arguments between collectives and building an individual stock portfolio. It's all about being realistic over your own inhouse skills and what is suitable for your client.

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Graham, my sentiments entirely. The gearing of many ITs caused considerable issues, then there are discounts to NAVs, premiums, hurdle rates etc - all jargon that for many investors is too much.

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Graham and Kevin, thanks for your thoughts. Do you think these are issues that can be addressed, or has the damage to the reputation of ITs been done?

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