There are various reasons why a firm may choose to soft-close a fund. If a portfolio gets too big, it limits the number of stocks it can invest in – especially in small, illiquid markets.
If a manager wants exposure to a sub-£50m company but he has in excess of £1bn under management, he would have to be a majority shareholder for it to have any effect on performance.
Some groups are too small to deal with mass inflows and so close the fund to protect the interests of existing clients, while others prefer to deal with a small client-base so as to minimise trading costs and manager meetings.
Closed-ended funds – or investment trusts – don’t have this problem. These vehicles are traded on the stock exchange and so do not receive inflows.
Many are run by some of the star managers associated with the open-ended universe, but whose funds are no longer available to new money.
Personal Assets Trust
FE Alpha Manager Sebastian Lyon’s Trojan portfolio has been one of the best performing and most popular funds in the IMA unit trust and OEIC universe of recent years.
Its ability to protect against the downside – illustrated by its stellar record in 2008 – as well as its strong record in up-markets resulted in mass inflows.
Performance of fund vs sector and benchmark over 10-yrs
Source: FE Analytics
As chief executive of Troy, Lyon decided to close the fund to new money in 2010, when assets under management stood at around £1bn.
Since then the portfolio has swelled to more than £2bn as a result of existing investors adding to their positions, but those who didn’t meet the investment deadline will have to look elsewhere.
One option is Lyon’s Personal Assets Trust, which he took control of in March 2009. Both the manager’s fund and trust have a global focus, though there are some differences in the top-10 holdings and sector weightings. Both also use the FTSE All Share as their benchmark.
Performance of trust vs sector and benchmark since March 2009
Source: FE Analytics
According to FE data, the Personal Assets Trust has returned 71.31 per cent since Lyon took over, marginally underperforming both its sector average and benchmark.
However, as the graph shows, it has been far less volatile and protected more effectively on the downside in 2011. Only two Global trusts have a better Sharpe ratio – which measures performance on a risk/return basis – over the period.
The Trojan fund has only returned 53.31 per cent during this time.
Personal Assets Trust has a TER of 1.15 per cent and is currently trading on a premium of 1.52 per cent.
Standard Life UK Smaller Companies Trust
FE Alpha Manager Harry Nimmo’s Standard Life UK Smaller Companies fund is another favourite with IFAs, but its small cap focus forced it to close to new money in 2011.
The news came as a blow to many financial advisers, since the portfolio was the go-to product for investors looking to gain exposure to the sector.
Nimmo launched a global equivalent in January this year, but some advisers have voiced concerns over the manager’s lack of experience overseas.
For those who want exposure to Nimmo’s expertise in the UK market, the Standard Life UK Smaller Companies Trust, which is essentially a mirror image of its open-ended counterpart, is a good option.
Performance of trust vs fund since March 2009
Source: FE Analytics
According to FE Analytics, the trust has returned 71.91 per cent over a five-year period, vastly outperforming its counterpart in the IMA universe.
It is more volatile than the fund and tends to suffer bigger losses in falling markets, but its longer-term record speaks for itself.
The trust has a TER of 1.17 per cent and is currently on a discount of 4.31 per cent.