Miton's Nick Greenwood, who invests in closed-ended vehicles trading on attractive discounts for his £42m Global Opportunities trust, has said recent changes in the wealth sector are making survival for smaller funds increasingly tough.
Greenwood (pictured) said trusts below £100m in size were struggling two years ago, but today that figure has risen closer to £400m, as wealth managers become more "aggressive towards standardising their portfolios".
Just over 200 out of 314 AIC-member investment companies (excluding VCTs and multiple share classes) are currently below £400m market cap.
Greenwood said: "Any fund that size is not going to be in a big wealth manager's model portfolio and that number is drifting up all the time. They are victims of structural change.
"As the traditional private client stockbrokers started to merge into mega-chain wealth managers, such as Brewin Dolphin and Rathbones, it has become difficult for investment trusts.
"These companies are looking to increasingly standardise their portfolios, so they have similar investments across their range, but it is difficult to buy investment trusts because stock is not always available."
Any fund that size is not going to be in a big wealth manager's model portfolio and that number is drifting up all the time. They are victims of structural change.
However, Greenwood said natural demand for closed-ended products is still present and wealth managers continue to buy big names such as Scottish Mortgage and Bankers which today "generally trade on no discount at all".
But, he added, the vast majority of smaller trusts have seen their discounts widen because there are no "natural buyers".
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Greenwood said: "Five years ago, a deep discount was a reflection of a problem with the quality of the trust, its manager or because the sector was desperately out of favour.
"But the main driver now is simply because the natural client base has moved on. Today, an active investor may pick up a stake and drive a fund into closure."
Despite these problems for investment trusts, Greenwood said he is not a fan of discount control mechanisms.
"I think discount control mechanisms water down the strength of an investment trust. If you have a zero-discount policy, you might as well have an open-ended fund. What is the point in having an investment trust?" he added.
Over three years to 11 May, the Miton Global Opportunities trust has returned 14.8%, versus its AIC Flexible Investment sector average of 6.8%, according to FE.
The trust is currently trading on a discount of 10.2%.
