Investment Trusts Explained: Your Guide to Successful Investing in Closed-Ended Funds. 2025. Mick Gilligan in Association with Killik & Co. Harriman House.
Investment Trusts Explained presents a comprehensive analysis with a chirpy narrative on an attractive, often overlooked investment vehicle. After reading Mick Gilligan’s excellent work, private wealth advisors and sophisticated individual investors will want to explore this UK-based investment category to uncover great long-term value on their own, based on their specific personal investment criteria. All the tools one needs to start are included in this complete guide. Mick Gilligan, CFA, CIPM, is the Head of Managed Portfolio Services at Killik & Co. in London.
If any investor questions using investment trusts, better known as closed-ended funds (similar, but not identical to US closed-end funds), it is probably due to a lack of familiarity with their distinctive characteristics, especially when compared with mutual funds. Other potential concerns involve liquidity and true market value. In addition to addressing these issues, Gilligan focuses throughout the book on long-term investing. He even attempts to define long-term. Is it five years, or better, ten years? For closed-ended funds, the period is ideally, it seems, forever, though the author reports performance of the best of them over ten- and twenty-five-year periods. He also cites the performance of some of the longest-lived funds, such as the F&C Investment Trust (FCIT), formed in 1868 as the Foreign and Colonial Government Trust.
What makes investment trusts so distinctive, and investing in them so profitable over the long haul? They initially raise capital from investors through an IPO. At that point, they are closed to new capital and have a fixed number of shares. Investors can easily buy or sell on the open market at a discount or premium to net asset value. The funds offer a diversified portfolio of assets to investors. Unlike mutual funds and other fund vehicles, they are required to pay out at least 85% of their income in any year. They can set aside excess income in one year and utilize it to supplement payment in a future year. The ultimate benefit to the investor is a consistent and possibly growing income stream.
Each investment trust has a non-executive board of directors, guided by the Association of Investment Companies (AIC) Code of Corporate Governance. The board works to ensure the trust’s investment objectives are met. Unique to investment trusts, the board can address buybacks when the market price shows sustained discount steepening without a fundamental explanation. The author launches into the technicalities of what such an action involves. He also cautions against purchasing oversized positions in smaller, though attractive, investment trusts. He considers such trusts to be “lobster pots” — easy to get into but a nightmare to get out of.
Non-UK readers may be questioning at this point why investment trusts registered on the London Stock Exchange should be of interest to them, other than for unique investment opportunities in the pound sterling, governed by UK securities laws and taxation. The stamp duty, Stock Exchange Electronic Trading Service (SETS) as it relates to less liquid issues, and the Ongoing Charges Figure (OCF) or Ongoing Charges Ratio (OCR) are foreign concepts to many investors — especially in the United States! Yet the precise methodologies Gilligan outlines for selecting investment trusts suitable for meeting investment objectives are directly transferable globally. The most important consideration is full due diligence by the investor before purchasing and while holding the investment trust. Investment trusts are required to issue annual reports, and their investment banks typically offer research reports on the investment funds. Their peer performance is clearly accessible through the AIC in the United Kingdom and the Closed-End Fund Association (CEFA) in the United States. Morningstar and LSEG Lipper provide excellent fund data and analytics, as well as leader ratings within peer fund groups.
Aside from the lively narrative providing an overview and analysis, Gilligan ices the cake in Chapter 36, “Fund Siblings and Cousins.” This is where he addresses comparable net performance between investment trusts and mutual funds managed by the same manager. In the case of the siblings, the funds have the same investment process, benchmark, and style characteristics, while the cousins differ in that they share a similar investment process and benchmarks. These also exhibit slightly different style characteristics. While Gilligan’s analysis strongly indicates outperformance by investment trusts, there are a few exceptions whose reasons can be revealed by closer analysis. There is no question, however, that investment trusts in general outperform mutual funds. The author proposes several key reasons: their ability to leverage up in a rising market, size, and enhancement to NAV per share that can arise from issuing shares at a premium and buying them back at a discount for an accretive impact. Bear in mind that the investment trusts have quantifiably lower management fees, which are the single largest cost item for funds. Gilligan also suggests that when valuations differ significantly, one can change horses and switch to the equivalent fund.
Readers will be thrilled to discover that the six appendices delve into topics such as costs, valuation, and investment trust outperformance versus mutual funds. This handy reference provides invaluable accommodation for active or curious investors. Additionally, tables highlighting lowest-cost and highest-ROIC investment trusts are featured among other characteristic categories. These provide a good bellwether as investors continue their analysis of investment trusts as active investments. The Bibliography is extensive, but given the nature of the book at hand, it does not include US-specific references on closed-ended funds. Lastly, the List of Key Abbreviations and Acronyms is extremely useful, as is the Index.
Investors can obtain a sneak preview of what is inside the book by listening to Killik & Co’s Investor Insights Podcast #58 — Mick Gilligan, Head of Managed Portfolio Services, Killik & Co. 24 July 2025.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.