The vast majority of investment trusts have outperformed ‘sister’ open-ended funds run by the same manager over one, three, five and ten years, according to new research by the Association of Investment Companies.
More than three quarters (77%) of investment trusts outperformed funds with the same manager. Over one, three and five years, investment trusts outperformed their sister funds in 82%, 72% and 53% of cases respectively.
Nick Britton, research director of the Association of Investment Companies, said: “There’s a number of reasons for this strong long-term performance. Investment trusts have a closed-ended structure, which enables their managers to buy and sell assets at the time of their choosing, not when investors buy or sell.
“They can invest in less liquid assets, such as smaller companies and even private companies, without worrying about having to sell them to meet redemptions. They can also gear, which adds risk but can enhance long-term returns.”
Britton added that while investment trusts won’t always outperform open-ended funds, especially in down markets when discounts tend to widen, over a market cycle investment trusts’ structural advantages support strong performance.
The AIC said that over the past decade, the average investment trust with a sister fund returned an extra £31 per £100 invested compared to the fund. Over one year, the average investment trust returned an additional £5 per £100 invested compared to its open-ended sister fund, while over three years this figure was £6 and over five years, an additional £3 for every £100 invested.
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