- Investment trusts are still the cheapest way to access some top fund managers
- When the manager runs an open-ended fund too, what are the pros and cons of each option?
Interest rates have come down and markets have been buoyant over the past year, but the investment trust bargain bonanza has shown no sign of ending. Many trusts performed well in 2024, with four in five Association of Investment Companies (AIC) sectors posting a positive average share price total return. And yet low valuations persist: the average discount in the sector overall amounted to 14.9 per cent at the start of 2025 (once 3i Group (III) is excluded), wider than the 12.7 per cent we saw at the start of 2024 and 10.7 per cent a year before that.
‘Bargains’ are widespread for those who search across both conventional assets and alternatives. To give an example, the AIC’s UK Equity Income sector comes with an average discount not far below 5 per cent, while in the Renewable Energy Infrastructure group that amounts to nearly 30 per cent.
This leaves adventurous investors with plenty of options. However, there is one other specific option worth considering for those who believe that improving fundamentals mean discounts might not persist for much longer.
As well as investment trusts, some managers and investment teams run open-ended funds that have a similar remit. Given the discounts on which trusts trade still look substantial, there is an opportunity to get one ‘cheap’ form of exposure to a well established manager. But first we need to understand the idiosyncrasies of trusts, as well as the important differences between a trust and its open-ended ‘sibling’.
What’s on offer
As our table below shows, the discounts themselves are appealing enough. Nine of the names in our sample were on double-digit discounts at the time of writing, with the trusts going cheap ranging from Baillie Gifford vehicles Baillie Gifford Japan (BGFD) and Pacific Horizon (PHI) to Polar Capital Technology (PCT) and two UK equity funds run by BlackRock.
One rule of thumb is to buy the trust (rather than the fund) when it’s on a sizeable discount and to favour the fund if the trust trades at a premium. Rob Morgan, chief analyst at Charles Stanley, notes: “Of those listed, Polar Capital Technology does look like an obvious option versus its fund equivalent, with a similar portfolio and charging structure, and no gearing so very much a like-for-like situation. Clearly, there is no guarantee that the discount will close, and indeed it could widen, but it would seem to be pretty decent value versus the fund.”
He also notes that a trust can be more appealing when income generation is involved, given a discounted valuation will also equate to a higher yield. “BlackRock Smaller Companies (BRSC) is perhaps a good opportunity here; perhaps surprisingly, it comes with a respectable yield of 3.2 per cent. That should help to underpin the discount – although no guarantees of course,” he says. Morningstar lists the 12-month trailing yield on the open-ended BlackRock UK Smaller Companies (GB00B8BS3324) as a considerably lower 2 per cent.
Baillie Gifford
Baillie Gifford is always a prominent name when it comes to asset managers that run open and closed-ended funds with a similar remit. Often the same investment team is in charge of both, but a look at the pairings here does show that investors are not always getting like for like.
Our table shows that the one-year correlations for these pairs, where a perfect correlation is 1, are fairly low for some duos, such as Pacific Horizon and Baillie Gifford Pacific (GB0006063233) as well as the BlackRock funds and the Janus Henderson funds.
That can occur for a few reasons, including the fact that the trusts can sometimes have a higher weighting to smaller companies, bigger position sizes or invest in unlisted companies.
The latter is certainly the case with some of the Baillie Gifford names, most notably Scottish Mortgage (SMT) and Edinburgh Worldwide (EWI).
Unlisted allocations can have various pros and cons: unquoted company valuations can be less volatile than those of listed shares, but a private business can be highly illiquid and difficult to quickly buy or sell.
On the other hand, unlisted businesses can sometimes have great growth prospects: in the case of Edinburgh Worldwide, which has notably outpaced its open-ended equivalent in the past year, a big position in Elon Musk’s SpaceX has helped to charge returns.
That might help justify the premium to net asset value (NAV) on which it has recently traded, although investors should note that Edinburgh (alongside two other Baillie Gifford trusts) is one of seven names currently being targeted by the activist investor Saba Capital.
Saba hopes to oust the trusts’ boards and potentially enact measures such as share buybacks or mergers with other vehicles in an attempt to generate higher returns.
Going in for risk
In general, trusts still serve as a punchier investment option than funds, partly because of their use of gearing. That’s shown in the chart, which illustrates that many trusts took a bigger hit than their open-ended peers in the sell-off of 2022.

As a result, a handful had a stronger recovery in 2024, including the global Baillie Gifford trusts and Nick Train’s Finsbury Growth & Income (FGT). That said, many others are either level with the open-ended equivalent over that period or even slightly behind.
When it comes to gearing, Baillie Gifford Japan and Schroder Japan (SJG) have notably high levels at the moment. Trusts can also embrace risk in other ways that their open-ended siblings normally cannot, including their ability to take bigger position sizes. Ben Yearsley, director at Fairview Investing, notes that this could be an issue for Finsbury Growth & Income, which has six holdings on a position size of more than 10 per cent and 92 per cent of its assets in its top 10 holdings. Lindsell Train UK Equity (GB00B18B9X76) is also heavily concentrated, but slightly less so, with its top six holdings each on a position of just under 10 per cent.
Some other quirks are worth keeping an eye out for. Morgan notes that leverage could come back to bite a trust in the current market, given that interest rates are higher and borrowing is more expensive.
Trusts can also come with performance fees that eat into underlying returns, while investment trust sector consolidation could still claim a few scalps in cases where funds lack in scale. BlackRock Income & Growth (BRIG) is one to watch here, given it has a market capitalisation of less than £40mn and operates in a sector where there is plenty of competition.
Finally, investors should remember that platforms treat open-ended funds as funds for charging purposes, with trusts and exchange traded funds (ETFs) treated as shares. As such, one option can be cheaper than another depending on your platform of choice. Hargreaves Lansdown, for one, looks expensive versus peers when it comes to its fund charges but is more competitive on shares, making it preferable for customers who hold trusts.
‘Cheap’ investment trusts by key metrics | ||||
---|---|---|---|---|
Closed/open-ended equivalents | Trust discount/premium (%) | Share price dividend yield (%) | Trust gearing | One-year correlation |
Baillie Gifford Japan Trust/Baillie Gifford Japanese | -14.9 | 1.4 | 20 | 0.89 |
Pacific Horizon/Baillie Gifford Pacific | -14.1 | 0.6 | 4 | 0.64 |
Schroder Japan/Schroder Tokyo | -13.7 | 4.4 | 14 | 0.86 |
JPMorgan Emerging Markets IT/JPM Emerging Markets | -12.7 | 1.8 | 2 | 0.55 |
BlackRock Income and Growth/BlackRock UK Income | -11.5 | 3.7 | 2 | 0.58 |
BlackRock Smaller Companies/BlackRock UK Smaller Companies | -11.1 | 3.2 | 8 | 0.86 |
Murray Income Trust/Abrdn UK Income Equity | -11 | 4.7 | 9 | 0.78 |
Scottish Mortgage/Baillie Gifford Long Term Global Growth Investment | -10.7 | 0.4 | 9 | 0.65 |
Henderson European Focus Trust/Janus Henderson European Focus | -10.4 | 2.5 | 4 | 0.47 |
Polar Capital Technology Trust/Polar Capital Global Technology | -10 | 0 | 0 | 0.91 |
Monks/Baillie Gifford Global Alpha Growth | -9.1 | 0.2 | 5 | 0.78 |
Fidelity Special Values/Fidelity Special Situations | -8 | 3.1 | 9 | 0.89 |
Diverse Income Trust/Premier Miton UK Multi Cap Income | -7 | 4.7 | 0 | 0.79 |
Finsbury Growth & Income/Lindsell Train UK Equity | -6.9 | 2.2 | 2 | 0.84 |
Temple Bar/Redwheel UK Equity Income | -6.5 | 3.5 | 6 | 0.87 |
Schroder Asian Total Return IT/Schroder ISF Asian Total Return | -4.9 | 2.4 | 9 | 0.87 |
Personal Assets Trust/Trojan | -0.8 | 1.1 | 5 | 0.76 |
Baillie Gifford US Growth/Baillie Gifford American | 1.3 | 0 | 4 | 0.89 |
Edinburgh Worldwide/Baillie Gifford Global Discovery | 0.7 | 0 | 5 | 0.78 |
Source: FE |