Investment trusts beat open-ended funds for highest costs


Fifty-three per cent of investment trusts have higher fees than open-ended funds with similar mandates run by the same teams, research from Tilney Bestinvest has shown.

The analysis of 47 pairs of open-ended funds and investment trusts challenges a long-held assumption that investment trust are a lower cost option than their open-ended counterparts, a point that has prompted some investors to avoid open-ended funds altogether.

Performance also differs between the two fund structures, depending on whether performance is assessed over a three-year or five-year period.

Tilney Bestinvest found over a three-year period open-ended funds delivered higher returns 60.5 per cent of the time. However, this flipped over a five-year period so that 63.9 per cent of investment trusts delivered higher returns than their open-ended counterparts.

Tilney Bestinvest managing director Jason Hollands says the removal of adviser commission from open ended funds, bringing down fund costs dramatically.

“With fund costs now often lower than those of similar investment trusts and the additional competitive challenge from the rapidly innovating Exchange Trade Funds industry, investors need to be more agnostic over which structures to use, considering all the relevant options on a case by case basis.

“Costs aside, investment trusts have many other valuable features compared to open ended funds, such as their suitability for illiquid asset classes, ability to use gearing to enhance returns and the role of independent Boards.

“One way trust Boards can clearly and practically demonstrate the benefits of this governance structure is to show they are acutely alive to the changing fee landscape and be prepared to drive down the fund managers fees where they are no longer competitive compared to open ended funds as well as their investment trust peers.”