Open-ended Funds & Investment Trusts

Popular investment vehicles known as open-ended funds have been thrust into the spotlight this month as a result of the shock suspension of investor Neil Woodford’s flagship fund.

The fund has trapped £3.7bn of investors’ money and, critics say, exposed a fundamental weakness in a structure of open-ended funds, especially those that have exposure to assets with limited liquidity. It has also highlighted crucial differences between open-ended funds and closed ended Investment Trusts.

Our clients will know that we favour Investment Trusts over the more popular open-ended funds. The structure of an Investment Trust means that the manager does not have to contend with constant inflows and outflows of funds. Investment Trusts issue a defined number of shares, which makes them “closed-ended” investment vehicles.

In addition, Investment Trusts often trade at a discount to their underlying Value. In other words, you can buy their shares at a price below the clear value of the investments they are holding. With an equivalent open-ended fund, you often pay MORE THAN the funds’ value on day one due to initial charges and a bid/offer spread.

We believe there are a whole host of reasons as to why Investment Trusts are superior to open-ended funds. Unfortunately, if you are not a client of ours, it is unlikely that your adviser will be using Investments Trusts over the other funds available.

If you are concerned that your investments are not working as hard as they should be and you would like further advice in this regard, please do contact the office to make an appointment with one of our highly qualified advisers, with an initial meeting provided at our cost.

The value of stockmarket investments and any income from them may fall as well as rise and investors may not get back the amount originally invested. Yield figures may vary and are not guaranteed. It is advisable to hold these investments for a minimum of five to ten years, over which periods stockmarket returns have shown themselves to be historically superior and broadly predictable through both good and bad times. Past performance should not be seen as an indication of future performance.