Investment trusts outperform open-ended funds, research suggests

Investment trusts have outperformed their open-ended equivalents in seven out of eight Investment Management Association (IMA) sectors over 10 years, according to research by Winterflood Securities.

Only in Japan have closed-ended funds serially underperformed. Winterflood’s research did not include upfront sales costs for open-ended funds. Global emerging markets funds showed the strongest outperformance.

The group attributed this outperformance to gearing and tightening discounts. Over the last 10 years, discounts have tightened across the whole investment trust sector from 11% to 8%. This is partly the result of tenders, share buyback programmes, which have led to uplifts to net asset values, and the introduction of discount control mechanisms. (article continues below)

It also says that closed-ended funds are more efficient. The investment trust sector has seen significant corporate activity, with a continual rationalisation of funds. Arbitragers will often attack underperforming funds and as a result, Winterflood says that the issue of poor performance tends to be addressed more speedily than in the open-ended fund universe. It also believes the role of independent boards is crucial.