Of 334 investment vehicles – including venture capital trusts (VCTs) – with a five-year track record, 181 have failed to return as much as the consumer price index (CPI).
The study comes in light of FE Trustnet research showing that one third of open-ended investment companies in the IMA universe returned less than the 16.5 per cent rise in the CPI over five years.
While critics say that few investments actually use the CPI as a benchmark, investors generally expect vehicles to beat the rate at which prices are increasing, especially as trusts and funds represent a higher risk.
Looking at performance over the last three years, 46 per cent of investment companies failed to beat CPI, compared with 14 per cent of OEICs.
Over the last 12 months, three in 10 investment companies fell short of inflation while just one in 10 open-ended funds trailed the CPI.
Percentage of vehicles that failed to beat CPI
| 1-yr |
3-yrs |
5-yrs |
|
| OEICs |
10 |
14 |
31 |
| Investment trusts |
30 |
46 |
54 |
Source: FE Analytics
The study only focuses on CPI, which measures changes in the price of consumer goods and services used by households. When compared against the retail price index (RPI), which is higher because it takes into account the cost of living, the performance of investment vehicles is even worse.
The results debunk the myth that closed-ended investment companies generally perform better than their IMA counterparts.
"I’m surprised because investment companies have consistently outperformed open-ended funds over most five-year periods," said Annabel Brodie-Smith, communications director at the AIC.
"In growth markets, gearing gives an advantage, but can cause a drag when markets are flat. Our long-term view for equities is very good and we would expect investment trusts to outperform funds."
Stephen Peters, investment trust analyst at stockbroker Charles Stanley, says that investors should be patient if they want a decent return on their capital.
"For income you certainly want income distribution to beat inflation," he said. "But five years is perhaps not long enough, in an environment of particularly high inflation, to expect to see an appreciable return on a capital returns basis."
"If investors want to beat inflation then they should invest in a vehicle that is benchmarked to CPI," he added.
Simon Elliot, investment trust analyst at Winterflood Securities, says that the underperformance compared with CPI shouldn't deter people from investing in closed-ended vehicles.
"The vast majority of investment trusts provide exposure to equities which have had a tricky run," he explained. "The All-Share has remained roughly flat for some time now and there has been high volatility."
"This doesn’t mean that people shouldn’t invest in equities. They are quite cheap on a historical basis and we have a relatively positive outlook going forward."
"The corporate sector is in good shape and there are some really attractive yields. Equities look better than other asset classes."