Investment trusts no longer lower cost than similar open ended funds

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Julia Grimes
Published: 22 Aug 2016 Updated: 28 Jan 2017

For decades one of the often cited advantages of investment trusts over open ended funds, has been their lower costs, a factor which has encouraged some ardent fans of them to eschew open ended funds altogether. Yet research from leading investment firm Tilney Bestinvest has revealed that this long held assumption no longer stands up to scrutiny. Tilney Bestinvest has identified 47 pairs of funds and investment trust with similar mandates run by the same teams and found that in 53% of cases the ongoing charges on the open ended funds are now lower than those of the investment trust.

Tilney Bestinvest also found that over three years the opened funds delivered higher returns than the comparable trusts on a total return basis in 60.5% of the time, though over five years returns on the trusts were ahead of the opened ended funds 63.9% of the time. The firm argues the switch in performance advantage towards funds over the shorter time period will principally reflect a widening of investment trust discounts.

Jason Hollands, Managing Director of Tilney Bestinvest, said: “Old and deeply ingrained generalised assumptions about different investment structures need to be fundamentally revisited given developments in the investment industry in recent years which has seen the removal of adviser commission from open ended funds, bringing down fund costs dramatically. In the run up to RDR many saw the removal of commission from open ended funds as a one way opportunity for the investment company industry to seize a bigger share of the market when in reality the reforms have also made funds more competitive on costs, posing a new competitive threat.

“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.”


Important Information:

The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. This press release does not constitute personal advice. If you are in doubt as to the suitability of an investment please contact one of our advisers. Past performance is not a guide to future performance

Investment trusts are similar to funds in that they provide a means of pooling your money but they are publicly listed companies whose shares are traded on the London Stock Exchange. The price of their shares will fluctuate according to investor demand and changes in the value of their underlying assets.


This release was previously published on Tilney Smith & Williamson prior to the launch of Evelyn Partners.