Proponents of these vehicles hope the greater transparency of financial advice will expose the masses to the advantages of closed-ended funds, which more often than not outperform their open-ended rivals over the long-term.
Investment trusts tend to be cheaper than funds and can gear – or borrow money to invest – allowing managers to make higher-conviction calls.
Their high-conviction bets are aided by the fact that investors have to sell shares, meaning managers do not have to fear a mass exodus from their fund and do not have to sell holdings unnecessarily.
Managers of closed-ended funds also tend to be given greater freedom than their open-ended counterparts, and trusts tend to have a longer average manager tenure as a result.
Here are suggestions for three specific investment horizons for anyone who is keen on the idea of holding a trust in their portfolio.
One to five years: Personal Assets Trust
Investment trusts are generally considered to be long-term investments, but there are some more defensively minded portfolios that are suitable for those focused on capital preservation in the shorter-term.
One such trust is Sebastian Lyon’s Personal Assets IT, which is one of the very few multi-asset options on offer in the closed-ended universe.
"It should have a low volatility, particularly now given that the manager is very cautious," said Charles Cade (pictured), investment trust analyst at Numis. "It has very little in equities at the moment, with the rest in fixed interest, gold, gold equities and a few other bits and pieces."
"The average age of investors in this trust is pretty old, as the real emphasis here is on not losing money."
"Lyon (pictured) is very good at what he does. It’s not had great relative performance recently, but it should still make money when the markets go up."
The four crown-rated trust has actually slightly underperformed its FTSE All Share benchmark since Lyon took over in March 2009.
However, although the index is a good point of reference, the trust’s multi-asset focus means that any comparison should be taken with a pinch of salt.
Performance of trust vs index since 2009
Source: FE Analytics
As the graph above suggests, the Personal Assets Trust has been much less volatile.
It also has a much lower max drawdown, which measures how much an investor would have lost if they bought and sold at the very worst moments.
Lyon currently has around 43 per cent in equities, 43 per cent in government bonds and cash and the rest in gold bullion.
The trust has an added layer of protection in that it does not tend to use gearing, which can result in steeper market falls if the manager gets their convictions wrong.
Personal Assets also has a discount control mechanism (DCM), which eliminates discount volatility.
The manager does this by issuing shares when the trust is on a premium and buying shares when it is on a discount.
The trust is currently on a premium of 1.2 per cent.
Lyon’s open-ended equivalent – the Trojan fund – is closed to new investors, meaning the Personal Assets Trust is probably the next best thing for anyone who wants direct exposure to him.
The trust has an ongoing charges figure of 1.01 per cent.
Five to 10 years: Fidelity Special Values
This £453m trust has recently been taken over by FE Alpha Manager Alex Wright, who has already left his mark on performance.
Fidelity Special Values' discount has come in from around 14 per cent to 10 per cent since he took over in September 2012, and the share price has increased by 32.27 per cent.
Performance of trust vs index since Sep 2012
Source: FE Analytics
Wright (pictured) has put a greater emphasis on small and mid caps, which should bode well for its growth prospects in the longer-term.
It does not suffer from the structural discount effect in the IT UK Smaller Companies sector, so there is more scope for its price-to-NAV ratio to rise.
"I like the manager and it’s a very interesting situation," said Cade.
"The trust has traditionally traded close to NAV, so there is definitely scope for a re-rating in the discount."
"The trust has a small and mid cap bias and so is likely to be a lot more volatile than something like the Personal Assets Trust."
"It’s also a trust that uses gearing, which gives more potential on the upside," he added.
Fidelity Special Values has an ongoing charges figure of 1.24 per cent. It is 9 per cent geared.
Ten years plus: BlackRock World Mining IT
"This is one that has been out of favour for a long time because China and commodities have not done so well, but if these areas are able to stabilise, it’s a trust that could do very well indeed," said Cade.
"The manager, Evy Hambro, has been running portfolios for a very long time and still has an excellent long-term track record in spite of the tough times recently." "Essentially you’re buying something that has good long-term potential, which has just gone through a period of underperformance, so there’s definitely a case for it."
"It’s also on a decent discount and is looking to enhance its yield, which gives investors something while they’re waiting for commodities to take off."
According to the AIC, the BlackRock World Mining IT is on a discount of 14 per cent.
It has lost money over one and five years and has barely broken even over three. However, as the table below shows, it has delivered very strong long-term returns and has also beaten its benchmark in the process.
Performance of trust vs index
| Name | 1yr returns (%) |
3yr returns (%) | 5yr returns (%) | 10yr returns (%) |
|---|---|---|---|---|
| BlackRock World Mining IT | -16.89 | 0.4 | -13 | 417.99 |
| HSBC Global Mining Index |
-11.52 | -14.94 | -11.9 | 374.97 |
Source: FE Analytics
Hambro invests predominantly in mining stocks, but it can invest up to 10 per cent in physical commodities.
The trust has an ongoing charges figure of 1.31 per cent, and is yielding 3.8 per cent. It is currently geared at 10 per cent.