Being the father of three teenagers, until about three years ago the word ‘rap’ was synonymous with blinged-up individuals with names like DJ Dizzy Jizzy addressing such key social issues as having the wrong trainers.

But in the time it’s taken some of the better exponents of the art form to rise from the ghetto to Beverley Hills, ‘wraps’ have appeared on the investment landscape and have quickly become a key tool for people with portfolios holding different investments.

At my firm, we have chosen a wrap account called Transact. These accounts allow you to quite simply hold virtually anything that is investible under the one roof, while allowing the freedom to move swiftly between asset classes if necessary.

Superseding the supermarkets

Many of you will be familiar with fund supermarkets.

For a while, these were revolutionary. They allow investors access to a wide range of unit trusts from a long list of different providers on a single administrative platform.

The big drawback with these has come recently, because there are not many places to run to for shelter in times of trouble. Equities and bonds got caught in the same downdraught this time, so a typical ‘Cautious Managed’ fund that mixes the two got hit surprisingly hard. The lack of a cash option is a serious failing in some supermarkets.

A wider choice

The biggest negative with fund supermarkets is that they basically tell you what you can use for investment, whereas with true wraps you say what you want to invest in.

So within a wrap, if you want to sit in cash you can, earning a very attractive interest rate for what is effectively a no-penalty, easy-access account from which you can take one-off withdrawals or a more regular income.

But we all know that cash, over the longer term, will not be as rewarding as other investment classes; and where the wrap wins over supermarkets is that you can invest in any unit trust, onshore or offshore. That means you can access some of the investment boutiques, such as Odey, Melchior, Miton or Eclectica, which may not be readily available to the man in the street.

Moreover, you can invest in any investment trust. Some investment trusts are looking quite attractive at the moment as their discounts have widened. So, in some cases you may be able to buy the same fund manager through an investment trust as you could through a unit trust but at a more reasonable level.

The nature of this summer’s fluctuations has shown that unit trusts, investment trusts and corporate bond funds can act in a similar pattern, so there are other sectors in which you might want to take refuge. Within a wrap, if you think the US dollar, for example, is too cheap, you can buy it.

And in this era of commodity demand, you can buy exchange-traded funds (ETFs) or exchange-traded commodities (ETCs) ranging from cotton to platinum. Anyone who has been sitting in a grains ETC over the past few weeks will be feeling rather smug with themselves, as traditional markets toil.

Exercising control

Put simply, the wrap allows you and your adviser to take more control over your investment or pension portfolio.

You don’t need new money to invest in a wrap either. Existing funds, investment trusts, direct equities, ISAs and PEPs can, in many instances, simply be re-registered into the wrap so that punitive capital gains tax can be avoided. Lazy pension funds can be transferred in and new IHT mitigation trusts can be effected within an investment bond, all in the one wrap account.

This article is from the October 2007 issue of What Investment.