Whether a fund has an open- or closed-ended structure can make a huge difference to its performance in terms of returns and volatility, however.
With this in mind, FE Trustnet asks Harry Nimmo and Gervais Williams how they run each of their portfolios and which one is better suited to what type of investor.
Harry Nimmo
Harry Nimmo (pictured) is one of the longest serving and most successful UK smaller companies managers.
![ALT_TAG](http://www.financialexpress.net/cms/Photos/Editorial/People/N/Nimmo_Harry_large.jpg)
According to FE Analytics, both funds have beaten their peers over the long, medium and short term.
His investment trust is the best-performing portfolio in the IT UK Smaller Companies sector over both five and 10 years.
It has returned 929.18 per cent over the last decade while his fund has returned 445.41 per cent. Both have eclipsed their benchmark – the Numis Smaller Companies ex IT index – over this time.
Performance of fund vs trust and index over 10yrs
![ALT_TAG](http://www.financialexpress.net/cms/Photos/Editorial/1.%202013_Article_charts_%20&_graphics/20130327_managers_1.png)
Source: FE Analytics
However, his trust has been considerably more volatile than both his fund and the index over this time, which is why Nimmo says it is better suited to more sophisticated investors who are able to understand and stomach the higher risk.
"There is about an 80 per cent overlap between my two portfolios and you would have to go pretty far down the list to see those differences," Nimmo said.
"The top-10 stocks are almost identical, but one of the differences is the cash-flow characteristics. There can be inflows into the OEIC, but we have actually seen outflows over the last few years."
"Whereas in the trust it is fixed capital so there are no flows unless we issue more shares, which we haven’t been able to do as we are currently trading on a discount."
"Those inflow characteristics do change the portfolios, but there is no point keeping the funds exactly the same."
"The OEIC doesn’t borrow either, while the investment trust is geared at 10 per cent at the moment – so that is another nuance."
Nimmo says his Standard Life Smaller Companies IT suits investors with a greater appetite for risk.
"I think at the margin, the trust is probably higher risk. Via the trust we can access companies that are sub-£50m, but with the best will in the world, due to its size the OEIC can’t look into anything below £100m," he said.
Nimmo currently runs £1.1bn worth of assets in his Standard Life UK Smaller Companies fund.
"We have a policy of actually buying shares if the discount approaches 10 per cent. There is a tender offer every six months if the discount widens to 6 per cent, so existing shareholders have the opportunity to sell," he said.
"I think owners of the investment trust need to know the difference between the two portfolios. The trust isn’t that different and I do try to avoid risk."
"However, the discount is now wider than it has been in recent months so we will be keeping an eye on it."
Nimmo’s fund has an ongoing charges fee (OCF) of 1.69 per cent and is now soft-closed, but can be accessed via a number of platforms.
His trust is currently trading on a 4.6 per cent discount and has ongoing charges of 1 per cent.
Gervais Williams
Gervais Williams (pictured), managing director at MAM, began running portfolios in 1993.
![ALT_TAG](http://www.financialexpress.net/cms/Photos/Editorial/People/W/Williams_Gervais_large1.jpg)
He heads up the closed-ended Diverse Income Trust and the £61.7m CF Miton UK Multi Cap Income fund, both of which he has co-managed with Martin Turner since they were launched in 2011.
Both of his portfolios are top quartile over six months and one year; the Diverse Income Trust is the best performer in the IT Growth & Income sector over the longer period.
Since the CF Miton Multi Cap Income fund was launched in October 2011, it has underperformed against the trust by 8.27 percentage points.
Performance of funds since Oct 2011
![ALT_TAG](http://www.financialexpress.net/cms/Photos/Editorial/1.%202013_Article_charts_%20&_graphics/20130327_managers_2.png)
Source: FE Analytics
Like with Nimmo’s portfolios, Williams’ trust has had a much higher annualised volatility than his fund.
"Broadly speaking, our investment strategy is very similar for both portfolios," Williams said.
"In terms of the underlying holdings, many are represented in both portfolios. Of course the OEIC has cash-flows which can mean existing holdings do get diluted, but overall the two portfolios do overlap a lot."
Williams says there are two significant differences between his portfolios – the trust's borrowing facility and the fact that it has trading subsidiaries.
"The principal purpose of the trust’s gearing facility is to generate returns after a setback in the markets. For instance, you wouldn’t have wanted to borrow in the build-up to 2008 as you would have been forced to sell a lot of stock," he said.
"However, after 2008 and heading into 2009, it was a good time to be borrowing as the prices of assets appreciated."
"It doesn’t just enhance your capital gain either: it also provides more income for your shareholders."
"These are secondary issues that are not core to the portfolio. For instance, if we see a stock that is trading at extremely distressed levels we might buy it and sell out in six months at a profit."
"You have to pay corporation tax on those gains, but it is another way of gaining a cushion going forward," he added.
Unlike Nimmo, Williams says that neither one of his portfolios is more risky. He says it all depends on whether or not an investor wants to deal with discount volatility.
"I’m not sure if it is the case that the investment trust is a more risky portfolio. It has an independent board so if we as managers aren’t doing a good job then they can look to replace us."
"That doesn’t happen very often, but they have the ability to do so," he said.
"Trusts do tend to perform better, but as private investors you have to deal with discount volatility, which can mean some investors will leave it alone as they just want it at its asset value," he added.
Williams’ trust has a yield of 3.4 per cent, compared with 5.41 per cent from his fund.
The Diverse Income Trust is currently geared at 1 per cent and is trading on a 4.6 per cent discount to its NAV. Its ongoing charges are 1.97 per cent.
CF Miton Multi Cap Income requires a minimum investment of £1,000 and has a total expense ratio (TER) of 1.74 per cent.