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How the FE Alpha Managers running both UK open- and closed-ended funds have performed

29 November 2016

FE Trustnet looks at the top managers who run both open- and closed-ended vehicles and compare the performance of their two most closely related products.

By Jonathan Jones,

Reporter, FE Trustnet

The average fund in the open-ended UK sectors has outperformed its counterpart investment trust over the past decade, which has been compounded by weak performance by trusts in 2016 to date. 

FE Analytics shows that the average IA UK All Companies fund has made 68.22 per cent in the past decade compared with a 57.48 per cent total return from the IT UK All Companies sector. When it comes to UK equity income, the average open-ended fund has made 65.37 per cent but this falls to 54.40 per cent for investment trusts.

Given that a number of FE Alpha Managers currently run popular open- and closed-ended portfolios, we looked at how an investor choosing one over the other 10 years ago would have fared. During this time, there’s been a number of mandate changes, manager moves and surprise market events which have impacted the outcome.

In the following article we compare the 10-year performance of the funds and trust currently headed up by Nick Train, Mark Barnett and Thomas Moore to see how long-term holders have done.

Nick Train - CF Lindsell Train UK Equity fund and Finsbury Growth & Income

The only manager to have been in charge of his fund and trust throughout the entire 10-year period is FE Alpha Manager Nick Train (pictured), who runs the five-crown rated CF Lindsell Train UK Equity fund and the Finsbury Growth & Income Trust.

In this case, his £3bn CF Lindsell Train UK Equity fund has outperformed the Finsbury Growth & Income by 22.81 percentage points over the last decade.

Performance of investment trust and unit trust over 10yrs

 

Source: FE Analytics

Over the last 10 years, the investment trust and open-ended fund have outperformed each other in five years each, the closest of any of the comparisons made. In fact, over the past three, five and seven years, the trust has outperformed the fund in both share price and NAV terms.

But when considering the reason behind the trust’s longer-term underperformance, Kepler Partner’s Alex Paget puts it down to the financial crisis, when the trust was holding certain stocks that the fund was not.

He said: “The reason Train’s fund has outperformed his trust over the past 10 years is due to the fact his trust fell further than the fund during the global financial crisis.

“The trust does differ very slightly to the fund as it has exposure to more unlisted and micro-cap holdings. This was probably as result of the trust’s higher weighting (albeit not massively so) to smaller companies and unlisted holdings.

“The reasons why the trust’s outperformance since the crisis hasn’t made up for the greater losses during the crisis is because the trust has traded at around NAV since mid-2009 (thanks to the board’s discount control mechanism and the popularity of the trust) – as well as the fact the two portfolios are almost identical in make-up.”


Mark Barnett - Invesco Perpetual High Income and Edinburgh

On the other side of the coin is the five crown-rated Invesco Perpetual High Income fund and Edinburgh Investment Trust.

Both were managed by Neil Woodford until his departure from Invesco Perpetual in 2014; they were then taken over by FE Alpha Manager Mark Barnett. The opening years of the decade-long period also saw the trust run by Fidelity before Invesco Perpetual won the mandate.

Performance of investment trust and unit trust over 10yrs

 

Source: FE Analytics

Over the last decade, the £1.6bn Edinburgh Investment Trust has outperformed the £11.3bn Invesco Perpetual High Income fund by 36.91 percentage points.

The trust has outperformed in six calendar years, with particular outperformance in 2009 and 2010, where it doubled the returns of the open-ended fund.

When it has underperformed the fund, such as in 2013 when it fell short by 3.46 percentage points, the difference has tended to be less pronounced.

However, with so many changes occurring during the period, including the switch from Fidelity to Invesco and the change from Woodford to Barnett, it is difficult to quantify the reasons for this.

Numis’ Charles Cade said: “It is worth bearing in mind that the 10-year record for Edinburgh has involved some changes in management – Invesco only took over management of the fund in Sep 2008 (it was formerly run by Fidelity).

“In addition, Neil Woodford ran both Edinburgh and the open-ended funds before his departure in early 2014 when Mark Barnett took over.”

Looking over the period from when Barnett took over (March 2014) the fund and trust, the Edinburgh trust is still 7.27 percentage points ahead of the fund, despite the idea that trusts have struggled in 2016.

Cade says that this outperformance could be due to the high gearing of the trust, while the fund may also have been hit by redemptions after former manager Neil Woodford left.

“Edinburgh’s portfolio is geared (currently 16 per cent) which will have been positive in rising markets, whereas the open-ended will have held net cash (it has suffered significant redemptions since Neil Woodford’s departure),” he said.


Thomas Moore - Standard Life Investments UK Equity Income Unconstrained and Standard Life Equity Income Trust

FE Alpha Manager Thomas Moore runs the Standard Life Investments UK Equity Income Unconstrained fund and Standard Life Equity Income Trust.

Over the past decade, his fund has outperformed the closed-ended counterpart by 31.73 percentage points, as the below graph shows.

Performance of investment trust and unit trust over 10yrs

 

Source: FE Analytics

Over this period, the trust has outperformed in eight of the calendar years, with 2012 and 2015 the only exceptions.

However, this is another with a change of management taking place during the decade. With this came a significant change in how the trust is managed.

Winterflood’s Simon Elliot said: “Thomas Moore was only appointed to run the investment trust in November 2011, i.e. five years ago, so the 10-year track record is less relevant.

“Prior to his appointment the trust was a relatively mainstream UK equity income investment trust. Under Thomas it gradually migrated towards a more unconstrained vehicle in line with his open-ended fund, although it took a few years to get there.”

Since Moore took over the trust, the Standard Life Investments UK Equity Income Unconstrained fund has actually outperformed by 6.24 percentage points, though much of this has been in 2016 as the Standard Life Equity Income Trust has fallen 11.92 per cent year-to-date.

Elliot said: “In terms of performance, it has been a more difficult year for Thomas, reflecting the mid-cap headwind and the fact that his funds are underweight large cap companies with overseas earnings.”

This mid- to smaller- company bias has not been favourable in 2016, with the Numis Smaller Companies Index (ex ICs) up 4.1 per cent in 2016 versus a total return of 11.4 per cent for the FTSE All Share.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.