Trustnet Magazine Issue 43 September 2018 | Page 4

Cover story
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[ CLOSING TRUSTS ]
Adam Lewis finds out what happens when investment trusts
go out of business
The end of the road
A
criticism often laid at the
door of the open-ended
investment industry is
that not only are there too
many funds, but the vast majority
of these are either poor performers
or are too small to be economically
viable.
For example, the latest edition of
the biannual Bestinvest Spot the
Dog list, which names and shames
the open-ended portfolios that
have underperformed for three
consecutive years and by more than 5
per cent over the cumulative period,
highlighted 58 dog funds, the highest
number recorded since the study
began in 1994.
The closed-ended universe, on
the other hand, tends to face a lot
less criticism, for the simple reason
that its funds face the prospect of
being liquidated and wound up if
they underperform for a sustained
period of time.
FE TRUSTNET
Survival of the fittest
According to the AIC, this fate can
befall an investment trust for a
number of reasons: if it has reached
the end of its fixed life, the investment
objective is no longer in demand, or
performance has been poor.
“Darwin’s theory of evolution
applies to investment trusts, it’s all
about the survival of the fittest,”
says Annabel Brodie-Smith,
communications director at the AIC.
“Investment trusts have been around
Open-ended funds do not
have independent boards
and often investors’ money
languishes in a poorly
performing, lacklustre fund
without any option for
change
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