Unit Trusts The Way Ahead
By E. W. I. PALAMOUNTAIN
IN 1959 the total value of British Unit Trusts I open to subscription by the public grew from about £100 million to almost £200 million. Even allowing for the general increase in security prices which has contributed to this growth, they have had a notable year. The rate of the advance, after twenty years of marking time, and the wide pub- licity which it has attracted have given the impres- sion that the unit trust movement is now a big factor in our affairs. The best way of getting the thing in perspective is to look at the picture in the United States. There is another good reason for doing this. However we may feel about it, the trends of modern materialist society are laid down in the New World and followed in the Old. In HP, TV and JD* the Americans have blazed the trail and we are plodding along in their wake. Now we are said to be moving into something called the Affluent Society which they have enjoyed over there for a number of years. It is reasonable to suppose that the evangelism of wider share owner- ship (already much in evidence here) will lead to something like a transatlantic pattern of invest- ment in Britain.
Well, the total value of US mutual funds (the much better name they have over there for unit trusts) is now something like sixteen billion dollars. Converting at the official rate of exchange, therefore, the American movement is nearly thitty times as big as the British one. Of course, America is a much bigger country; but even on a per capita basis the ratio is still nine to one. Making all due allowances for differences in the incentives * J D—Juvenile delinquency.
t See the Acton Society's interesting booklet Wider Shareholding. to saving, the relative strengths of competing savings media in the two countries, the greater weight of American salesmanship and the residual suspicion of equity ownership among sections of the British population, j- it would hardly seem wild to predict a threefold growth of British unit trust holdings during the next decade.
Where will the money come from? Some of it will continue to be transferred from more traditional refuges for the small saver—gilt-edged stocks, building societies, the Post Office and so
on. And some of it will be new money which Would otherwise have been invested in those media. Wise virgins will buy units for the long term; foolish ones will buy them for the short term. It is here that many City observers (and responsible unit trust managers too, for that matter) feel some anxiety. Markets, after all, do not go up continuously; and meanwhile too many new investors are being attracted into unit trusts
ma§t advertising and the smell of quick profits. If they are not disposed to take the rough with the
their disillusionment may leave them bitter.
What unit trust managers and investment advisers can best do is to remember that a large Proportion of new savings will inevitably come out of income, and here there is really no problem. Let the neophyte invest in equities by regular contributions to a unit trust thrift plan, and the ;eve), of markets at the moment of his entry can be disregarded. Furthermore it is only in some such context that the small investor really makes good sense. A single investment of £50 (and much smaller sums are being solicited) is a nonsense; the net dividends on it will just about buy you a round of drinks every six months. But a fifteen- year equity programme of 10s. a week is some- thing to which the investment adviser, no less than the politician and the sociologist, can honestly give his blessing. It is also a method of investment in which employers can very easily and properly co-operate--as, needless to say, they have done in the United States—by making agreed deductions from wages and salaries and sending them en bloc to the selected unit trust savings plan. Many organisations already do this for National Sav- ings, and it would be entirely in keeping with the change in official attitudes to investment (as not- ably revealed by the proposed amendments to the Trustee Acts) for them to extend the facility, with their blessing, in this manner. Similar facilities, of course, can be furnished by the banks for all those increasing groups of employees who are being paid by credit to accounts opened for the purpose. The banks, too, are uniquely placed for guiding the first steps of new investors through- out the country, and it is very much to be hoped that they will find it possible to play their full part in the development of a unit-holding democracy.
What other action can or should be taken by unit trust managers themselves in 1960? They will of course continue to press for more favourable treatment of their investors by the Inland Revenue, and they are entitled to hope that, even if no actual concessions are granted, the long- standing injustice of management charges being deducted from net income will be removed. Responsible managers, as we have already indi- cated, will continue to go after the long-term investor while diverting the short-term applicant in such directions as the best building societies; and they will hope, fondly or otherwise, that the latter will do as much for them. Finally, if they are to emulate their American counterparts, there is another lesson which they can usefully learn from them. That is to act purely as agents. No manager of an American mutual fund issues units to himself and then resells them to the public. It is good to be able to report that this practice is gradually losing favour in this country also. If British unit trusts can achieve the highest standard expected of City institutions they will merit the same success as the mutual funds. For the latter, be it noted, have proved no more outstanding an investment than British unit trusts, and their management charges are appreciably higher.
Tax relief and the growing volume of official recognition and support will unquestionably pro- mote a further expansion of unit trusts in Britain. Responsible management will deserve it.