Throughout the large majority of sectors and regions, funds at the top of the total return standings are closed-ended. Investment trusts beat off competition from high-profile open-ended funds in the UK, Asia, Europe and in multi-regional sectors such as IMA Global and Global Emerging Markets.
Cheaper charges, a longer average holding period and the ability to gear are all seen as big advantages for trusts over open-ended funds, and have all contributed to their mass outperformance in the long-term.
Trusts are most dominant in the Asia Pacific universe, accounting for all five of the best-performing investment portfolios over the last decade.
Number-one over the period is Hugh Young’s Aberdeen Asian Smaller Companies IT, which has returned a massive 890.97 per cent.
There are also places for the Scottish Oriental Smaller Companies and Aberdeen New Dawn investment trusts, which have returned 648.79 and 473.96 per cent respectively.
There was no place in the top-five for Angus Tulloch’s First State Asia Pacific fund however, which returned less than half as much as the Aberdeen trust over the period.
In addition, First State Asia Pacific is soft-closed, while the second-best performing fund in the region – Schroder Institutional Pacific – is also unavailable to retail investors.
The best-performing retail-friendly Asian fund is Aberdeen Asia Pacific, which has returned 366.87 per cent – more than 500 percentage points less than the Aberdeen Asian Smaller Companies IT.
Performance of fund and trust over 10-yrs
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Source: FE Analytics
It is a similar story in the UK equity income universe, which combines IT UK Income and Growth and IMA UK Equity Income; according to FE Analytics, the top-five performers are again all investment trusts. The list includes FE Alpha Manager Nick Train’s Finsbury Growth & Income Trust and fellow Alpha Manager James Henderson’s Lowland Investment Company.
Top-5 UK equity income funds/trusts over 10-yrs
| Name | 10-yr returns (%) |
| Finsbury Growth & Income Trust | 318.51 |
| Lowland Investment Company | 245.39 |
| 243.04 | |
| Edinburgh Investment Trust | 225.38 |
| Temple Bar Investment Trust | 217.63 |
Source: FE Analytics
With returns of 318.51 per cent, Finsbury Growth & Income tops the list. The portfolio is almost 120 percentage points ahead of the best-performing open-ended fund – Invesco Perpetual Income – which has returned 198.96 per cent over the last decade.
In the UK growth space, comprising the IMA UK All Companies and IT UK Growth sectors, the two standout performers are again closed-ended.
The Artemis Alpha and Schroder UK Mid Cap trusts have returned 506.3 and 460.11 per cent over the period, beating the likes of Franklin UK Mid Cap and Nigel Thomas’ AXA Framlington UK Select Opps fund.
Over five years, open-ended funds are more successful however. MFM Slater Growth and Liontrust Special Situations top the tables with returns of 72.89 per cent and 72.83 per cent respectively.
Peter Spiller’s Capital Gearing Trust is the best-performing UK growth trust over the period, delivering 69.47 per cent.
Investment trusts also beat their open-ended rivals in the four global sectors – IMA Global and IMA Global Equity Income, and IT Global Growth and IT Global Growth & Income.
Top 10 global funds/trusts over 10-yrs
| Name | 10-yr returns (%) |
| Murray International Trust | 466.58 |
| F&C Global Smaller Companies | 425.83 |
| The Cayenne Trust | 324.93 |
| M&G Global Basics | 307.24 |
| McInroy & Wood Smaller Companies | 301.21 |
| Lindsell Train IT | 277.45 |
| Scottish Mortgage Investment Trust | 276.45 |
| Jupiter Primadona Growth | 248.76 |
| Invesco Perp Global Smaller Companies | 238.28 |
| Mid Wynd International IT | 238.27 |
Source: FE Analytics
Seven of the top-10 global portfolios over the last decade are closed-ended, including the likes of Murray International and the Scottish Mortgage Investment Trust.
Trusts are equally dominant in the emerging markets and European sectors.
They also come out on top when comparing portfolios run by the same team, or even the same manager. Perhaps the best example of this is a comparison between FE Alpha Manager Alexander Darwall’s Jupiter European Opportunities IT and Jupiter European fund.
Performance of fund vs trust over 10-yrs
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Source: FE Analytics
According to FE data, the investment trust returned 268.34 percentage points more than the fund over the 10-year period.
While the two portfolios do have differences, the largest being that the trust can invest in the UK, they have very similar sector weightings, and there is a major overlap in their top-10 holdings.
Harry Nimmo’s Standard Life UK Smaller Companies trust also significantly beats the equivalent fund over 10 years – 789.27 per cent compared with 367.54 per cent – as does Alastair Mundy’s Temple Bar investment trust, which has beaten the Investec UK Special Situations fund by 35.74 percentage points.
Despite investment trusts’ dominance, the vast majority of retail investors prefer to go down the open-ended route, which Hargreaves Lansdown’s Rob Morgan expects to continue for a long while yet.
"In terms of why don’t people buy them, I suppose it boils down to them not having the awareness," he said.
"Advisers tend to use unit trusts because they have a less complicated approach to investing, as there isn’t the discount volatility, as the NAV [net asset value] stays the same."
"Basically it is a cleaner way of investing and you know pretty much what you are getting."
Morgan also points to poor liquidity in investment trusts.
He commented: "When it comes down to buying in bulk it can be very difficult, especially for big firms like ours, because there are issues with liquidity as there is only a certain amount of stock available. In that respect, open-ended funds are easier to gain exposure to."
"However, private and savvy investors will certainly witness the merits of holding investment trusts."
In addition, Morgan believes that the higher volatility of trusts means they are unsuitable for cautious investors with a shorter time horizon.
"Factors like gearing affect the volatility and make them a more risky investment," he said.
According to FE data, the average trust has a higher volatility than the average fund across the Asia Pacific and UK sectors over the past 10 years. IMA Asia Pacific ex Japan has an annualised volatility of 19.53 per cent, while IT Asia Pacific ex Japan Equities has a score of 20.88 per cent.
Trusts also lost significantly more in the 2008 downturn; in the UK growth space, for example, the average trust lost 39.74 per cent, compared with 31.96 per cent from the average fund.