There are some instances in which you may wish to switch from an investment trust to its open-ended fund equivalent, or buy the open-ended fund rather the investment trust.
The main reason is if an investment trust is trading at a premium to net asset value (NAV) making its shares effectively more expensive than the units in the open-ended fund. Or if you already own the investment trust and the premium looks like it is going to close, it could be a good time to take your profits.
An example of this is Ruffer Investment Company, which has an excellent performance record, but as a result is trading at a premium to NAV of more than 6 per cent. "As the premium approaches nose-bleed levels, a switch into the CF Ruffer Total Return Fund looks attractive, notwithstanding the extra 0.5 per cent management fee,"says Mr Brierley
CF Ruffer Total Return Fund, an open-ended investment company (Oeic) has an excellent performance record, and is the top cautious managed fund over three and five years, but its annual management charge of 1.5 per cent is higher than the investment trust's 1 per cent. Over five years the investment trust has outperformed CF Ruffer Total Return Fund by 2.7 per cent in terms of annualised NAV.
Another instance in which it might be good to switch from an investment trust to its open-ended equivalent is if the investment trust has a high level of debt, known as gearing, and you don't want the risk of this, but do like the fund manager and the underlying investments.
