Disclosure – Non-substantive Research
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. With this commentary, Kepler Partners LLP does not intend to influence your investment firm's behaviour.
The conventional wisdom surrounding investment trusts is that their closed-ended structure offers clear advantages for small-cap investing, primarily via the nature of how they are traded. The closed-ended structure frees their investment managers from the painful requirements of daily liquidity, with small-cap companies often being thinly traded at the best of times. In theory, this should mean that investment trust managers can afford to look further down the market-cap space, as well as having the option to run a more concentrated portfolio because they are able to take chunkier positions in smaller companies. But to what extent do small-cap investment trust managers actually utilise the closed-ended structure, relative to their open-ended peers? In this article we examine multiple different data points: the average market cap of small-cap investment trust managers’ holdings, the dispersion of their holdings’ market caps, and the overall concentration of a strategy.
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