Investment funds perform better in times of economic downturn, but trusts are better for the long term, according to research from wealth platform Interactive Investor.
The investment platform compared the return of trusts and funds over 20, 10 and five years, as well as year-to-date.
According to its research, while there are specific sector variations, the “headline data is that investment trusts tend to outperform significantly over the very long-term, and underperform during periods of clear volatility.”
For example, the AIC Global investment trust sector is down 23% compared to the IA Global funds sectors, which is only down 15%.
Over 20 years, however, the AIC Global investment trust sector returned on average 440%, compared to the IA Global sector, which returned 329% over the same period.
The reason for this, according to ii, is “primarily due to the fact that investment trusts can borrow to enhance returns.”
“This is great in a rising market, but a drag when the markets fall.”
“It’s interesting to compare performance, but investors need to be aware that the investment trust industry is smaller than the funds industry – so has fewer competitors in the field,” said Dzmitry Lipski, head of funds research at ii.
“Even so, it’s very clear that over the very long term and during volatile periods, there can be some clear differences in the way each behaves.”
“This data illustrates loud and clear that investors should keep an open mind, and they don’t have to choose between funds and trusts – you can have a mix of both.”