BRITAIN's top fund managers have returned up to 60% more in their lesser-known investment trusts than in their more popular funds which levy much higher fees.

Star managers, including Mark Mobius of Templeton and Harry Nimmo at Standard Life, have all achieved better returns on their investment trusts - which are, in effect, companies that invest in assets such as shares - over the past three years than on their better-known open-ended funds, according to analysis for The Sunday Times by Bestinvest, the adviser.

For example, Nimmo's Standard Life UK Smaller Companies fund is up 111% over three years, but his UK Smaller Companies investment trust is up 152%. Mobius's Global Emerging Markets fund is up 57%, compared with a 107% rise for his Emerging Markets investment trust.

Investment trusts, sometimes known as close-ended funds, are effectively companies that make investments. Investors buy shares in the company and these can be traded on the market meaning their value can rise or fall. Investment funds, the common name for open-ended investment companies and unit trusts, pool investors' resources together and grow bigger or smaller as more people buy in or sell out. It means there is no share price to consider as with investment trusts.

Research by Winterflood Securities, an analyst, shows investment trusts outperformed open-ended funds in 13 of 15 investment sectors over the first three months of this year. The FTSE 100 recorded its best first-quarter performance in 12 years, although markets fell sharply last week amid growing concern about a possible eurozone bailout for Spain. The Footsie fell 2.24% on Tuesday and closed the week down at 5,652.

Investment trusts tend to perform better when markets rise, though experts caution that they are more vulnerable in a dip.

Adrian Lowcock at Bestinvest said: "Investment trust managers are able to borrow, known as gearing, in order to invest. It means they are better able to take advantage of rising share prices. However, they can also lose more money in a falling market. That means investment trusts are more volatile than unit trusts."

Analysts have predicted a boom in interest in the trusts ahead of the introduction of the retail distribution review (RDR) at the end of this year. Its aim is to overhaul the way the investment industry operates. Under the RDR, fund providers will be banned from paying commission to advisers. As a result, investment trusts, which have never paid commission, could be recommended by advisers more often.

Analysis for The Sunday Times by Lipper shows the average trust charges 1.14%, against 1.66% for funds.

David Fuller's view I have long maintained that I will choose investment trusts (closed-end funds) over unit trusts (mutual funds) every time. Nevertheless, I was astonished by the dramatic difference in performance shown by the table in this article. Higher fees are obviously not in investors' interests.

The only exception to my overall preference for investment trusts is when the discount to NAV occasionally moves to a premium, in which case the sector or market covered is probably ripe for a correction, unless it is an income fund. These tend to trade in a narrow range above or below their NAV.