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The areas where investment trusts are beating their open-ended rivals over the long run

04 October 2017

Research by FE Trustnet shows that investment trusts are beating funds in most asset classes over the past 10 years.

By Gary Jackson,

Editor, FE Trustnet

The past decade has been more profitable for the average investment trust investor than those holding open-ended funds, research by FE Trustnet suggests, with outperformance of almost 80 percentage points seen in trusts’ strongest area.

While no investment structure is outright ‘better’ than another, fans of closed-ended trusts point out that they offer a number of advantages over open-ended funds. These include freeing up the manager from having to worry about inflows and outflows, the ability to gear the portfolio to maximise returns and investors having the chance to buy in at a discount or sell at a premium.

The argument goes that these features can make trusts a more attractive option for long-term investors so we decided to compare the performance of the average members of a number of open-ended and close-ended sectors over the past 10 years.

 

Source: FE Analytics

As the table above shows, investment trusts in the majority of the 10 sectors we examined are outperforming their open-ended rivals over this time frame.

One notable exclusion is emerging market equities, as the investment trust sector does not have a long enough track record. For what it’s worth, emerging market trusts are outperforming over five years but by just 40 basis points.

Over 10 years, seven of the 10 investment trust sectors with a long enough track record are ahead of their average open-ended peer. IT UK All Companies, IT UK Equity Income and IT Flexible Investment are the areas where trusts are lagging.


The strongest investment trust outperformance over the past decade, on average, has come from the IT Asia Pacific excluding Japan Equities sector, which is 79.31 percentage points ahead of the IA Asia Pacific Excluding Japan sector.

Here, the three best performing trusts have been Aberdeen Asian Smaller Companies (up 284.52 per cent), Scottish Oriental Smaller Companies (up 268.06 per cent) and Schroder Oriental Income (up 206.60 per cent).

In comparison, the highest returner in the open-ended IA Asia Pacific Excluding Japan sector – Stewart Investors Asia Pacific Sustainability – made 225.24 per cent, while Stewart Investors Asia Pacific made 193.31 per cent and Aberdeen Global Asian Smaller Companies was up by 186.94 per cent.

Performance of trusts vs sectors over 10yrs

 

Source: FE Analytics

Looking at the bottom of the sectors’ performance table also shows some differences between the two and suggests why the trusts have had a stronger average return over the past decade.

Martin Currie Asia Unconstrained Trust made the IT Asia Pacific excluding Japan Equities sector’s lowest return at 53.09 per cent, while the next two were still up 62.98 and 85.57 per cent. In the open-ended peer group, however, the fund at the bottom – Natixis Emerise Pacific RIM Equity – lost 10.72 per cent and the next two were only up by 6.93 and 20.34 per cent.

When it comes to trusts’ second strongest area – Japanese equities – the best performing fund of the open-ended IA Japan sector is Legg Mason IF Japan Equity, which has made 415.52 per cent over the past decade. This is far higher than the 260.70 per cent return from Baillie Gifford Japan, the top performing investment trust.

However, the average IT Japan Equities trusts has still generated a higher return than its open-ended peer, thanks to the fact that every member of the sector has made more than 100 per cent in the last 10 years; in the IA Japan sector, less than half of its members have made this amount while some have even made a loss.


While most investment trust sectors have beaten their open-ended peers over 10 years, one area where they haven’t is UK equities: IT UK Equity Income and IT UK All Companies trusts have, on average, made a lower return than their Oeic or unit trust equivalents.

Looking at the larger IA UK All Companies sector and we see that seven of its members have made a total return in excess of 200 per cent over the past decade, led by Slater Growth (up 273.92 per cent), Old Mutual UK Mid Cap (up 243.52 per cent) and Royal London UK Mid-Cap Growth (up 241.60 per cent).

In the closed-end IT UK All Companies sector, however, no members have made a return this high. The strongest performer has been Schroder UK Mid Cap, which is up by 177.58 per cent; Invesco Perpetual Select UK Equity follows with a 171.28 per cent gain while Fidelity Special Values is up 164.25 per cent.

Performance of funds vs sectors over 10yrs

 

Source: FE Analytics

Multi-asset is the other area where open-ended funds are on top, at the moment.

Newton Osprey has made the IA Flexible Investment sector’s biggest 10-year return at 152.34 per cent, Threadneedle Navigator Adventurous Managed is up 124.24 per cent and CF Ruffer Equity & General returned 116.80 per cent. In the closed-ended space, Ruffer Investment Company has made 127.38 per cent, Capital Gearing Trust 102.78 per cent and RIT Capital Partners 102.70 per cent.

However, the average return of the flexible investment trusts has been dragged down by loss-making members – UIL (formerly Utilico Investments Limited), Henderson Alternative Strategies Trust and New Star IT have made losses ranging from 9.56 per cent to 25.13 per cent in total return terms. In the open-ended sector, all members are in positive territory with the worst still making a 17.06 per cent total return over 10 years.

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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.