Some of the best and most famous managers in the UK also run investment trusts that closely resemble their funds, and these often perform better.
As Charles Stanley’s Stephen Peters put it: "In broad terms, you’re buying the same strategy just in a different form. Each of them are very good funds."
Peters adds that due to the closed-ended structure of investment trusts, they can take a longer-term view, which is an advantage that is often evident from their overall returns.
However, he says the products are not without their risks and stresses that investors need to be aware of potential pitfalls.
With this in mind, FE Trustnet looks at three closed-ended alternatives to giant open-ended funds.
Invesco Perpetual High Income
Neil Woodford (pictured) is often the first name that comes to mind when investors talk about heavy-hitting fund managers.
The FE Alpha Manager has consistently outperformed his peers over a career spanning more than 20 years on his £13.7bn Invesco Perpetual High Income fund. Woodford has also headed up the £10bn Invesco Perpetual Income fund since 1990. Both products have been outstanding performers in the IMA UK Equity Income sector, meriting their five crown-rating – the highest score available.
Woodford’s Edinburgh IT has a higher yield than both open-ended funds, at 3.9 per cent, and has strongly outperformed them since he took over the trust in 2008.
Over the last five years, the four crown-rated trust has gained 76.08 per cent, while the open-ended Invesco Perpetual High Income and Income funds have made 49.48 per cent and 48.12 per cent, respectively.
Performance of funds over 5yrs
Source: FE Analytics
And unlike the open-ended funds, the trust has just £1.4bn in assets under management.
The composition of the trust reflects Woodford’s overall themes in his open-ended portfolios, taking a strong view on healthcare, although industrials have a smaller presence in the trust.
Among the top holdings in the Edinburgh IT are blue chips such as AstraZeneca, GlaxoSmithKline and British American Tobacco – all of which feature in his funds.
The trust is trading on a premium to net asset value (NAV) of 1 per cent. It is geared at 18 per cent and has ongoing charges of 1.12 per cent, including performance fee.
The open-ended funds have higher charges, at 1.68 per cent for Invesco Perpetual High Income and 1.69 per cent for Invesco Perpetual Income.
Standard Life UK Smaller Companies
FE Alpha Manager Harry Nimmo (pictured) is certainly the heavyweight in the UK small cap space, with £1.1bn in assets under management in his flagship Standard Life UK Smaller Companies fund.
Like Woodford, he also runs a closed-ended fund that trumps even his open-ended one.
The trust, which has just £216.3m in assets under management, has beaten the fund over one, three, five and 10 years.
Over the last decade, the trust has gained an impressive 787.69 per cent, compared with 395.2 per cent from the fund.
Performance of trust vs fund over 10yrs
Source: FE Analytics
The trust is trading on a discount of 2.2 per cent, with 8 per cent gearing. It also has a higher dividend yield than its counterpart, at 1.2 per cent.
Much like Woodford’s portfolios, Nimmo’s trust reflects the themes he is backing in the Standard Life UK Smaller Companies fund.
Services and industrials are the highest sector weightings in both portfolios, and familiar smaller companies names such as online retailer ASOS, financial services firm Hargreaves Lansdown and Irish bookmaker Paddy Power populate the top holdings in each vehicle.
Standard Life UK Smaller Companies IT has ongoing charges of just 0.98 per cent, compared with 1.69 per cent from the fund.
Aberdeen Emerging Markets
While the dominance of the five crown-rated Aberdeen Emerging Markets fund is beyond dispute, the firm has stemmed flows into the £3.9bn portfolio, leaving investors in need of an alternative.
With just £880.6m in assets under management, the closed-ended Genesis Emerging Market IT has a similar composition to the Aberdeen portfolio, with financials, telecommunications, media and technology stocks, and basic materials the highest weightings in both portfolios.
Among the top holdings in the trust are Samsung Electronics and Taiwan Semiconductor Manufacturing, both of which feature in the Aberdeen portfolio.
The remainder of the top 10 differs from the open-ended fund, however.
Over the last decade, Genesis Emerging Market has gained 507.65 per cent, nearly as much as the 525.56 per cent made by the Aberdeen fund.
The trust has returned 20.11 per cent over the past year, compared with the fund’s 19.58 per cent, according to FE Analytics.
Performance of trust vs fund over 1yr
Source: FE Analytics
The trust is trading on a discount of 7.3 per cent, with no gearing. It has ongoing charges of 1.69 per cent, slightly lower than the 1.94 per cent from the Aberdeen fund.
