Investment managers who run two versions of the same fund are consistently delivering higher returns from the cheaper versions, in a stark demonstration of the impact that fees can have on performance.

Professional investors managing both an investment trust and a unit trust have achieved better performance from the cheaper investment trust over all time periods studied, according to new research by analysts at Lipper.

Often, the portfolios are identical or very similar. But the lower performing unit trust versions of the funds charge investors more. On average, the better performing investment trust versions have fees that are half a percentage point lower - around two-thirds the cost of many unit trusts.

"To see in black and white that the impact of charges can turn around the performance is pretty striking," said Ed Moisson, head of UK research at Lipper.

Investment trusts are usually cheaper because do not have to use their annual fee to pay commission to financial advisers.
Lipper's research studied 34 fund managers over three, five and 10 year periods, comparing the mid price of investment trust shares with open-ended fund prices. Investment trusts outperformed unit trusts in 70 per cent of the cases studied.

For example, Aberdeen New Dawn investment trust returned 480 per cent to investors in the 10 years to the end of May - nearly one and half times the 323 per cent returned by the similar Aberdeen Asia Pacific fund. Both are run by Hugh Young.

David Fuller's view As an investor I have long preferred investment trusts (closed-end funds) to unit trusts (mutual funds). In addition to the differences in fees, they can be bought and sold like stocks and usually trade at a discount to net asset value.

However, not all investment trusts (ITs) have low fees, although the older ones generally do. Some of the more recently launched ITs have considerably higher fees. Investors should check prospectuses or fact sheets, as part of their due diligence, as these list the charges for any ITs or funds under consideration.

Demands for high fees on funds to come down - (May require subscription registration, PDF also provided.)