Trusts on top
Why most investment trusts outperform their sister funds
The majority of investment trusts have outperformed “sister” open-ended funds run by the same manager over one, three, five and ten years, according to research released by the Association of Investment Companies (AIC).
Over ten years, 77% of investment trusts outperformed funds with the same manager. Over one, three and five years, investment trusts outperformed their sister funds in 82%, 72% and 53% of cases respectively.
“More than three-quarters of investment trusts have outperformed their sister open-ended funds over ten years.”
Nick Britton, Research Director of the Association of Investment Companies (AIC), said: “More than three-quarters of investment trusts have outperformed their sister open-ended funds over ten years. There’s a number of reasons for this strong long-term performance. Investment trusts have a closed-ended structure, which enables their managers to buy and sell assets at the time of their choosing, not when investors buy or sell. They can invest in less liquid assets, such as smaller companies and even private companies, without worrying about having to sell them to meet redemptions. They can also gear, which adds risk but can enhance long-term returns.
“Investment trusts won’t always outperform open-ended funds, especially in down markets when discounts tend to widen. But over a market cycle, investment trusts’ structural advantages support strong performance.
“We intend to publish this research regularly to track the performance of investment trusts versus their sister funds over time.”
How much did investment trusts outperform?
Over the past ten years, the average investment trust with a sister fund returned an extra £31 per £100 invested compared to the fund. In percentage terms, investment trusts outperformed their sister funds by an average 1.3 percentage points per year.
Over one year, the average investment trust returned an additional £5 per £100 invested compared to its open-ended sister fund, over three years £6, and over five years an additional £3 for every £100 invested. In percentage terms, the outperformance amounted to 4.5, 1.8 and 0.5 percentage points per year for the same time periods.
The more muted outperformance over five years is influenced by the widening of investment trust discounts over this period. The average investment trust discount widened from 4% at the end of March 2021 to 14% at the end of March 2026.
“…investment trusts outperformed their sister funds by an average 1.3 percentage points per year.”
