Many open-ended funds are restricted to investing in listed shares and securities, and so cannot invest in most alternative asset classes. Investment companies have no such restrictions and can invest in almost anything.
Many alternative asset classes are quite specialist and illiquid, or require sizeable minimum investments, making them difficult for ordinary investors to invest in directly. Investment companies enable smaller investors to access these asset classes more easily, as you can buy shares in the investment company on the stock market like any other listed company
Open-ended funds are constantly expanding and contracting as investors move their money in and out.
This means fund managers have to manage the fund to be able to meet the demands of investors who may want their money back at any time. Because of this, open-ended funds are often restricted to investing in liquid assets.
A closed-ended investment company has a fixed number of shares in issue at any one time. These are traded backwards and forwards on the stock market, which has no impact on the underlying portfolio. This makes them very suitable for illiquid assets such as property, private equity and infrastructure.
Many alternative asset classes seek to provide a high level of income. Investment companies have some unique advantages over other funds when it comes to maintaining or growing the income they pay you in the form of dividends.
They can hold back some income in good times to pay out in later years or pay dividends out of the capital profits they make when they sell investments.
Read ‘Looking for a little bit more?’ to learn about the unique income advantages of investment companies