Another less documented advantage of the structure is the fact they aren’t at risk of soft or hard-closing. When an open-ended fund has a great run or is launched by a highly rated manager, they often receive huge attention from investors, and have to close their doors to new money as a result.
The larger the fund, the less flexibility the manager has to express their ideas, and so denying other investors access to them ensures the interests of existing investors aren’t adversely affected. Only very rarely do trusts have this problem.
The money pouring into equities in recent years has led to a number of funds closing, meaning open-ended investors are denied access to some of the UK’s highest profile managers. However, more open minded investors who can still get exposure to them.
Here are some examples.
Gervais Williams
Fans of micro-cap star manager Gervais Williams (pictured) can still get access to him via the open-ended CF Miton UK Smaller Companies fund; however, income-focused investors will have to look elsewhere.
The £397m CF Miton Multi Cap Income fund has taken the sector by storm since its launch in November 2011, topping the sector with returns of 79.84 per cent. However, a surge of inflows led to its soft-closure in November last year.
Williams needs greater flexibility than most, given he looks at companies in at the bottom end of the market cap scale.
Investors can still access his expertise in dividend-paying small caps through the £256m Diverse Income trust, which was launched in April 2011.
Though there is some overlap between the portfolios – SQS Software Quality Systems and Provident Financial are both top-10 positions, for example – the Diverse Income trust has significantly more invested in FTSE Small Cap [68.6 per cent compared to 17.2 per cent]. The Multi-Cap Income fund favours companies on the AIM index, which accounts for 40.2 per cent of assets. By contrast, Williams has nothing in AIM stocks.
FTSE 100 and FTSE 250 stocks have a similar weightings across the funds, currently at around the 30 per cent mark.
The Diverse Income trust has returned 75.38 per cent since launch, beating the IT UK Equity Income sector average by more than 25 percentage points. Williams doesn’t name a benchmark, but by means of comparison, the FTSE Small Cap (ex IT) index has returned 60.95 per cent.
The trust has beaten CF Miton Multi Cap Income since the latter was launched, by just over 7 percentage points. It has been more volatile, though.
Performance of trust vs fund since Nov 2011
Source: FE Analytics
Both the fund and trust have a target yield of 4 per cent. Diverse Income has ongoing charges of 1.84 per cent and is on a 3.6 per cent premium. It isn’t currently geared.
David Gait
The emerging market team at First State are among the most highly-respected in the business, but their popularity has come at a price. The likes of First State Asia Pacific Asia, Asia Pacific Sustainability and Indian Subcontinent have all closed to new money in recent years.
All of the above are run by FE Alpha Manager David Gait, who has been running funds at the firm since 2005. His First State Worldwide Sustainability fund remains open, but for those looking to get exposure to the top-performing manager’s expertise in emerging Asia, they will have to be prepared to invest in an investment trust.
Gait took over the £201m Pacific Assets trust with Sashi Reddy in mid-2010, completely overhauling the portfolio. They removed previous manager F&C’s bias to resources, cyclicals and state-owned companies, in favour of more defensive areas like consumer staples.
The trust has performed very strongly over the past four years with returns of 71.55 per cent, putting it well ahead of its sector and benchmark.
Performance of trust, sector and index over 4yrs
Source: FE Analytics
Like all First State portfolios, the managers have a keen emphasis on downside protection, illustrated by their strong performance during the emerging market sell-off last year.
Gait and Reddy invest in the Asia Pacific region and India. Their expertise in India has led them to a 29.5 per cent weighting, making in their largest country weighting by some distance.
Taiwan is second with 17.3 per cent, followed by South Korea, the Philippines and Singapore. China is a big underweight, accounting for just 3.4 per cent of assets.
The trust is on one of the narrowest discounts in the Asia Pacific ex Japan sector [-0.4 per cent] reflecting how highly it is rated.
Ideas for the future
While the following funds are still officially open to new money, groups have said they are in the process of “slowing inflows” – i.e. not marketing them – which is often a pre-cursor for a soft-closure.
Julie Dean’s £2.3bn Schroder UK Opps fund is a good example. Investors expecting that to soft-close sometime soon may be tempted by her Schroder UK Growth trust, which is currently trading on a 6.7 per cent discount.
Gait’s colleague Angus Tulloch is another example. His £6.5bn First State Asia Pacific Leaders fund remains open for the time-being, but elsewhere investors can get access to him via the Scottish Oriental Smaller Companies trust.
Harry Nimmo’s Standard Life UK Smaller Companies fund has once again re-opened to investors in recent months. A nimbler option that has no risk of closing is his Standard Life UK Smaller Companies IT, which also has a much better record over the medium and long-term.