Investment Trusts Are Outperforming Funds - Which Is Best for Your Portfolio?

Why It Matters

The findings highlight that trusts’ closed‑ended structure can generate superior returns, especially for investors with longer horizons and tolerance for discount volatility, influencing portfolio allocation decisions.

Key Takeaways

• Trusts added £31 per £100 over ten years ($39 per $100).
• 82% of trust‑fund pairs outperformed in the past year.
• Trust discounts widened from 4% to 14% between 2021‑2026.
• Closed‑ended structure lets trusts avoid forced selling during market stress.
• Platform fees can make trusts cheaper for large portfolios.

Pulse Analysis

The recent AIC analysis arrives at a time when investors are scrambling for yield amid persistent inflation and market turbulence. By pairing each investment trust with its open‑ended counterpart, the study isolates structural effects rather than asset‑class biases. The data reveal a consistent 1.3‑point annual premium for trusts over ten years, translating into roughly $39 extra per $100 invested. Short‑term outperformance is even more pronounced, with 82% of pairs delivering higher returns in the last twelve months, underscoring the potential upside for active managers who can exploit pricing inefficiencies.

At the heart of the trust advantage is its closed‑ended nature, which frees managers from redemption pressures that can force fire‑sale of assets in volatile periods. This flexibility enables the use of gearing, investment in less liquid niche segments, and the ability to hold positions through market cycles. However, the same mechanism introduces a discount‑premium dynamic; the average discount expanded from 4% to 14% between March 2021 and March 2026, eroding some of the performance edge. Investors must therefore monitor NAV versus market price, as buying at deep discounts can boost returns, while premium‑priced trusts may underperform.

For portfolio construction, the choice between trusts and open‑ended funds hinges on cost structures, liquidity needs, and risk tolerance. Platform and management fees can tilt the balance—larger portfolios often find trusts cheaper, while regular savers may favor the simplicity and lower transaction costs of open‑ended funds. A blended approach, allocating core exposure to low‑cost index funds and supplementing with specialist trusts in areas like UK small‑caps, can capture the best of both worlds while mitigating the volatility associated with trust discounts.