Why Invest in Closed-end Funds?

The closed ended nature of trusts allows the fund manager the flexibility to manage a fixed pool of assets largely free from the distractions of investor inflow and outflows

David Holder 23 October, 2015 | 2:30PM

Morningstar approach the analysis of Closed Ended Funds (Investment Trusts) with the same vigour and methodology that we apply to any other investment strategy and we feel very strongly that they can and should play a central role in many client portfolios. There is much to like about the structure when compared to other types of investment vehicles such as Unit Trust and OEICs.

The closed ended nature of the vehicle allows the fund manager the flexibility to manage a fixed pool of assets largely free from the distractions of investor inflow and outflows. This is a definite advantage when it comes to investing in less liquid asset classes and arguably allows the fund manager to pursue a purer form of his investment philosophy than might be possible in an alternative open ended investment vehicle.

Other key advantages include the potential effect of gearing although this can work adversely, the generally competitive fees charged by many Investment Trusts and the oversight and advice given from an independent board. Of course the structure of the investment vehicle will largely be irrelevant if the fund manager lacks the ability or resource to be able to add value over and above his relevant benchmark over the longer term.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
City of London Ord325.50 GBX0.15
Witan Ord168.80 GBX0.84

About Author

David Holder  is a senior investment research analyst at Morningstar

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