Closed end funds beat open ended equivalents
Of the 24 managers that run both an open-ended fund and an investment trust with a similar strategy, only three open-ended funds outperformed their closed-end cousins, according to Investment Adviser research.
Using data supplied by Morningstar, Investment Adviser identified 24 managers or teams that run at least one closed-end trust and one open-ended vehicle, onshore or offshore, with a similar strategy. It then compared the total return of their investment portfolios in net asset value terms. The only difference between the vehicles was the potential use of gearing, or leverage, in the closed-end form – as well as, in some cases, unquoted investments.
These vehicles cover a wide variety of sectors and regions, including emerging markets, Japan, UK smaller companies and commodities such as mining and energy, and include well known names such as Neil Woodford and Richard Buxton.
In the three years to August 9 2012, results show 21 of the 24 management teams saw better results from their closed-end offering.
The biggest discrepancy in performance was highlighted in the two vehicles managed by Evy Hambro and Catherine Raw, with the BlackRock World Mining trust producing a return of 32.27 per cent compared with 10.15 per cent from its open-ended counterpart, the BGF World Mining Sicav fund – a difference of 22.12 percentage points.
Of the 24 managers that run both an open-ended fund and an investment trust with a similar strategy, only three open-ended funds outperformed their cousins
The two vehicles do, however, differ. The Sicav globally invests at least 70 per cent of its total assets in the equity securities of mining and metals firms whose main economic activity is the production of base metals and industrial minerals such as iron ore and coal. It can also hold the equity securities of firms involved predominantly in gold, other precious metal or mineral mining, but it does not hold physical gold or metal.
The comparable investment trust also targets a worldwide portfolio of mining and metal securities. However, up to 10 per cent of its assets can be invested in physical metals and up to 10 per cent can be invested in unquoted investments. This flexibility in investments may help explain the boost in performance over the medium term.
Looking at the open-ended funds that outperformed their closed-end counterparts, all three are specialist regional products. The strategies include one focused on European smaller companies, as deployed by the JPMorgan European Smaller Companies open-ended and closed-end funds. The others are the First State Asia Pacific Sustainability Oeic, as compared with the Pacific Assets trust, and BlackRock’s Latin American equity strategy.