Investment Trusts outperform equivalent Funds

Laura Suter

15 July 2019

• Investment trusts outperform the equivalent fund 75% of the time
• Trusts are cheaper 60% of the time
• Beware volatility: trusts are more volatile due to gearing

Laura Suter, personal finance analyst at investment platform AJ Bell, comments:

“There’s been lots of talk recently about whether investment trusts or funds are the better vehicle for investors, so we decided to crunch the numbers on comparable portfolios. There are a number of fund managers who run both a fund and an investment trust to a similar strategy, meaning we can compare the two on cost, performance and volatility to see which comes up trumps.

“Comparing these ‘dual managers’ we found that in 75% of cases the investment trust outperformed the fund, on a total return basis over a 10-year period. What’s more, in 60% of the pairings the trust was the cheaper vehicle, with a lower ongoing charges figure. On average the funds in the group cost 0.97% while the trusts cost 0.91%.

“However, investors don’t get this extra performance for free and they have to be prepared for a bumpier ride. Investment trusts have the ability to borrow money, or ‘gear’, meaning that when they are doing well their returns can be supersized, but when their investments are falling these losses could be amplified. This shows in the figures, and a whopping 90% of the time the trust is more volatile than the equivalent fund.

“One of the more famous dual managers is Nick Train, who runs both the £7.1bn Lindsell Train UK Equity fund and the £1.8bn Finsbury Growth & Income trust. The fees on the funds are almost identical (as are the top 10 holdings), but the trust’s performance has outstripped the fund, returning 498.6% over 10 years compared to 432.8% for the fund. However, over time the trust has been slightly more volatile, likely due to the gearing that the trust has, which is currently low at 1.2%.

“Another dual manager pairing is Alexander Darwall, running the Jupiter European fund and the Jupiter European Opportunities trust, although he will step down from running the fund at the end of this year and is planning to set up his own firm. This is an example where the trust is cheaper than the fund, with an OCF of 0.9% compared to 1.02% for the fund. Over 10 years the performance difference is stark, with Jupiter European returning 364% compared to 567.9% for the trust, albeit for far higher volatility.

“One pairing that bucks the trend on price is Alex Wright’s Fidelity Special Situations and Fidelity Special Values investment trust, where the latter is pricier than the fund, costing 1.05% compared to 0.91%. Despite this potential fee drag, the trust has outperformed the fund by almost 50% more over 10 years, returning 268.5% compared to 187.8%, although Wright hasn’t run the fund for that entire time.”

Which has outperformed over 10 years?	Percentage
Trust	75%
Fund	25%

Which is cheaper?	Percentage
Trust	60%
Fund	40%

Which is more volatile?	Percentage*
Trust	88%
Fund	13%

*Numbers don’t equal 100% due to rounding

Fund manager	Fund name	Investment Trust name	Which is cheaper?	Fund - 10-year performance	Trust - 10-year performance	Which outperformed over 10 years?	Which is more volatile?
Adam Avigdori, David Goldman	BlackRock UK Income D Acc	BlackRock Income and Growth Ord	Fund	153.34%	168.36%	Trust	Fund
Alex Wright	Fidelity Special Situations W Acc	Fidelity Special Values Ord	Fund	187.77%	268.51%	Trust	Trust
Alexander Darwall	Jupiter European I Acc	Jupiter European Opportunities Ord	Trust	364.02%	567.89%	Trust	Trust
Andrew Brough	Schroder UK Mid 250 Z Acc	Schroder UK Mid Cap Ord	Trust	203.09%	276.27%	Trust	Trust
Andrew Rose	Schroder Tokyo Z Acc	Schroder Japan Growth Ord	Fund	158.58%	205.77%	Trust	Trust
Austin Forey	JPM Emerging Markets B Net Acc	JPMorgan Emerging Markets Ord	Trust	161.69%	199.47%	Trust	Trust
Ben Ritchie	Aberdeen UK Equity Income I Acc	Dunedin Income Growth Ord	Trust	163.17%	189.25%	Trust	Trust
Ben Rogoff, Nick Evans	Polar Capital Global Tech I Inc	Polar Capital Technology Ord	Trust	587.83%	661.14%	Trust	Fund
Chern-Yeh Kwok	Aberdeen Japan Equity I	Aberdeen Japan Ord	Fund	175.03%	204.48%	Trust	Trust
Ciaran Mallon	IP Income & Growth Z Acc	Invesco Income Growth Ord	Trust	171.69%	180.73%	Trust	Trust
Douglas Brodie	Baillie Gifford Global Discovery B Acc	Edinburgh Worldwide Ord	Fund	536.50%	472.00%	Fund	Trust
Ed Kuczma	BGF Latin American D4 GBP	BlackRock Latin American Ord	Trust	80.07%	65.70%	Fund	Trust
Evy Hambro, Olivia Markham	BGF World Mining D4 GBP	BlackRock World Mining Trust plc	Trust	16.51%	46.35%	Trust	Trust
Ewan Markson-Brown, Roderick Snell	Baillie Gifford Pacific B Acc	Pacific Horizon Ord	Fund	269.97%	218.49%	Fund	Trust
Francesco Conte, Edward Greaves	JPM Europe Smaller Companies B Acc	JPMorgan European Smaller Comp Ord	Fund	269.40%	306.82%	Trust	Trust
Francis Brooke, Hugo Ure	Troy Trojan Income O Acc	Troy Income & Growth Ord	Trust	186.07%	273.47%	Trust	Trust
Georgina Brittain, Katen Patel	JPM UK Smaller Companies B Acc	JPMorgan Smaller Companies Ord	Fund	281.82%	377.24%	Trust	Trust
Harry Nimmo	SLI UK Smaller Companies Inst Acc	Standard Life UK Smaller Co. Ord	Fund	404.73%	488.14%	Trust	Trust
Hugh Young	Aberdeen Global Asn Smllr Coms X Acc GBP	Aberdeen Standard Asia Focus Ord	Fund	218.65%	393.87%	Trust	Trust
Hugh Young	Aberdeen Asia Pacific Equity I	Aberdeen New Dawn Ord	Trust	183.31%	211.02%	Trust	Trust
Hugh Young	Aberdeen Global Indian Equity X Acc GBP	Aberdeen New India Ord	Trust	256.23%	241.50%	Fund	Trust
John Bennett	Janus Henderson European Focus I Acc	Henderson European Focus Trust Ord	Trust	226.35%	240.83%	Trust	Trust
Jonathan Brown	IP UK Smaller Companies Eq Z Acc	Invesco Perpetual UK Smaller Ord	Fund	350.29%	472.87%	Trust	Trust
Mark Barnett	Invesco Income UK Z Acc	Edinburgh Investment	Trust	129.54%	184.79%	Trust	Trust
Mark Barnett	IP UK Strategic Income Z Acc	Perpetual Income & Growth Ord	Trust	137.61%	144.89%	Trust	Trust
Matthew Brett	Baillie Gifford Japanese B Acc	Baillie Gifford Japan Ord	Fund	262.52%	457.77%	Trust	Trust
Michael Kerley	Janus Henderson Asian Div Inc UT I Acc	Henderson Far East Income Ord	Fund	194.10%	154.67%	Fund	Trust
Neil Hermon	Janus Henderson UK Smaller Coms I Acc	Henderson Smaller Companies Ord	Trust	413.34%	575.28%	Trust	Trust
Nick Mustoe	IP Global Equity Income Z Acc	Invesco Perp Select Glo Eq Inc Ord	Trust	242.75%	216.42%	Fund	Fund
Nick Train	LF Lindsell Train UK Equity Acc	Finsbury Growth & Income Ord	Trust	432.75%	498.59%	Trust	Trust
Oleg Biryulyov, Habib Saikaly	JPM Russia C (acc) USD	JPMorgan Russian Securities Ord	Trust	103.87%	175.14%	Trust	Trust
Ollie Beckett	Janus Henderson European Smr Coms I Acc	TR European Growth Ord	Trust	364.45%	246.11%	Fund	Trust
Peter Hewitt	BMO Multi Man Invest Trust Fd C Net Acc	BMO Managed Portfolio Growth Ord	Fund	194.30%	185.71%	Fund	Fund
Praveen Kumar	Baillie Gifford Japan Small Co B Acc	Baillie Gifford Shin Nippon Ord	Fund	482.38%	789.22%	Trust	Trust
Richard Newbery, Alistair Whyte, Euan Macdonald, Keith Muir, Chris Watt, Peter Shaw, Jeremy Hall	Aberforth UK Small Companies Acc	Aberforth Smaller Companies Ord	Trust	233.72%	274.80%	Trust	Trust
Samuel Morse	Fidelity European Acc	Fidelity European Values Ord	Trust	191.01%	239.16%	Trust	Trust
Shoichi Mizusawa, Nicholas Weindling	JPM Japan A Net Acc	JPMorgan Japanese Ord	Trust	235.63%	278.12%	Trust	Fund
Simon Gergel	Allianz UK Equity Income C Inc	Merchants Trust Ord	Trust	154.69%	195.48%	Trust	Trust
Steve Davies	Jupiter UK Growth I Acc	Jupiter UK Growth Ord	Fund	151.97%	144.83%	Fund	Trust
Thomas Moore	SLI UK Equity Income Uncons Plat 1 Acc	Aberdeen Standard Equity Income Ord	Trust	206.16%	165.39%	Fund	Trust
Source: AIC/AJ Bell/FE. Data is on a total return basis.

Laura Suter

Director of Personal Finance

Laura Suter is director of personal finance at AJ Bell. She is a spokesperson for the company on a range of personal finance topics and is quoted in print media and regularly appears on TV and radio. She is also a founding ambassador of AJ Bell Money Matters, a campaign to get more women investing and engaging with their finances; she hosts two podcasts; and regularly speaks at events and webinars. Prior to joining AJ Bell she was a multi-award winning financial journalist, specialising in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor. She has previously worked for adviser publications in London and New York and has a degree in Journalism Studies from University of Sheffield.