Fund managers have tended to deliver a greater return via their investment trust than their equivalent open-ended fund over the past five years, according to the latest study from FE Trustnet, which shows that of the 29 managers who run a mirror fund and trust, 89 per cent of them generated better total returns from their closed-ended fund over the period. 
Previous FE Trustnet studies have highlighted that, by and large, investment trusts tend to outperform open-ended funds over the longer term.
However, research like that can be quite crude in many respects as while we have always compared funds and trusts which focus on the same area of the market, the composition of Investment Association and Association of Investment Trust sectors can vary quite markedly in terms of composition.
Therefore, to give a fairer representation of the data, we looked at the performance of managers who run the exact same strategy in both an open and closed-ended structure in the major equity and mixed asset peers groups.
We only included managers who have run both their equivalent fund and trust since January 2011 – leaving us with a list of 29 from the UK equity income, UK all companies, UK smaller companies, Europe, Asia Pacific ex Japan, global emerging markets, Japan and mixed asset spaces.
These include some of the most well-known managers in their respective areas such as Mark Barnett, Harry Nimmo, Andrew Rose, Sebastian Lyon and Hugh Young but excludes the likes of Neil Woodford or Gervais Williams as their funds or trusts don’t have a long enough track record.
Performance of mirror funds and trusts between 2011 and 2015
Source: FE Analytics
As the table above shows, of those 29 managers included in the study 89 per cent delivered a better return from their investment trust than their fund in the five years between 2011 and 2015, according to FE Analytics.
Drilling down further, FE data shows that – on average – their trusts outperformed their funds by 21.67 percentage points over that time. Looking at it slightly differently, their trusts beat their funds by 1.61 times over period.
On top of that, looking at 2011, 2012, 2013, 2014 and 2015 individually, those trusts outperformed their equivalent OEIC or unit trust in 3.21 of those five calendar years. To see the full breakdown of the managers, their trust and funds and the relative performance of those portfolios, click to page 2.
Performance of managers' funds and trusts between 2011 and 2015
Source: FE Analytics
According to FE Analytics, the manager who has delivered the greatest level of outperformance (in percentage point terms) over the period is Baillie Gifford’s Sarah Whitley.
Between 2011 and 2015, her Baillie Gifford Japan Trust returned 138.59 per cent while her Baillie Gifford Japanese fund made 59.24 per cent – resulting in an outperformance of 79.35 percentage points.
Performance of fund versus trust and index
Source: FE Analytics
Both portfolios – which have almost the same top 10 holdings – have outperformed their respective peer groups, however.
Other managers who have delivered a far greater return in their trust compared to their fund include David Horner and David Taylor at Chelverton (Small Companies Dividend Trust has beaten Chelverton UK Equity Income by 68.9 percentage points), Neil Hermon (Henderson Smaller Companies IT has beaten Henderson UK Smaller Companies by 57.8 percentage points) and Alexander Darwall (Jupiter European Opportunities has beaten Jupiter European by 56.38 per cent).
As mentioned earlier, the average annual outperformance of trusts has been 3.2 years since 2011.
However, there are two managers out of the 29 that have generated better total returns from their trusts in 2011, 2012, 2013, 2014 and 2015 – Stephen Macklow-Smith at JP Morgan and Samuel Morse at Fidelity.
Macklow-Smith’s JP Morgan European Growth IT, for example, has beaten his JPM Europe by 27.54 percentage points over the period as a whole and beat the trust – on average – by 3.87 percentage points in each of the last five calendar years.
Morse, on the other hand, returned 35.43 percentage points more on his Fidelity European Values IT than his Fidelity European fund. His trust’s annual outperformance over the period was 5.05 percentage points on average.
Performance of funds versus trusts
Source: FE Analytics
Of course, when putting together data like, this time frames are crucial.
Indeed, thanks to nuances such as gearing and discount volatility, trusts do tend to outperform funds in rising markets and the period in question (even after a painful 2011 and more volatile conditions in 2014 and 2015) has generally been rewarding for equity investors.
On top of that, discounts were generally narrower in investment trust land in 2011 than they were in 2015.
However, even though trusts also tend to fall harder than open-ended vehicles in more stressful conditions – again due to those same nuances – managers specialising on out-of-favour areas have seen better performance from their closed-ended strategies.
For instance, Mark Mobius, Hugh Young and Austin Forey – who all focus on hated emerging market equities – have made greater losses in their open-ended funds than their closed-ended ones (around a 10 percentage point difference in all three cases).
Looking at the two different structures and there are a number of reasons why a closed-ended structure is more suited.
First and foremost, having a ‘closed’ pool of capital means a manager can afford to take longer term bets as they are not forced to sell due to redemptions. It also means they can invest in smaller stocks and less liquid areas, which again can bolster returns.
Indeed, at the recent Investment Trust Advantage conference hosted by investment trust boutique Kepler Partners, FE Alpha Manager Nick Train – whose Finsbury Growth & Income trust has beaten his CF Lindsell Train UK Equity fund by 11.18 percentage over the past five years – explained his love of the closed-ended structure.
“Michael Lindsell and I really, really love investment trusts,” Train said.
“The very first vehicle I ever worked on as an assistant fund manager was an investment trust and 16 years ago when Michael and I were setting up Lindsell Train, it was absolutely no accident that we decided upon (as the cornerstone of our business) an investment trust.”
“It remains the cornerstone of our business today (Lindsell Train IT) and our longest running product, our longest standing client at Lindsell Train is also an investment trust – Finsbury Growth & Income.”
“Again, this is absolutely deliberate, the vast majority of such savings I have – 95 per cent – are invested in those two investment trusts and the reason for that is the performance investment trusts can deliver.”
However, while the study suggests managers deliver better performance from closed-ended funds, the opposite is also true for three managers we analysed.
Simon Gergel’s Allianz UK Equity Income fund has beaten his Merchants Trust in four out of the last five calendar years and with returns of 43.08 per cent, has outperformed the former by 4.51 percentage points over the period as a whole.
It’s a similar story with Michael Kerley with his Henderson Asian Dividend Income fund and Henderson Far East Income IT.
It is FE Alpha Manager Steve Russell, however, that has seen the greatest underperformance of a trust versus a fund.
His Ruffer Investment Company (which he co-managers with Hamish Baillie) and his CF Ruffer Total Return fund (which he co-manages with David Ballance) has almost identical allocations to index-linked bonds, equities, gold and cash.
However, his trust has underperformed his fund by 9.78 percentage points over the period as a whole and has failed to beat the OEIC in any of the last five calendar years.
Performance of fund versus trust
Source: FE Analytics
FE data suggest this difference in performance is due to Ruffer Investment Company’s discount volatility. It traded on a 4.5 per cent premium this time five years ago, though towards the back end of last year that had fallen to a 5.5 per cent discount to NAV as investor sentiment worsened.