This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.
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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