MoneyWeek article- Investment trusts outperforming funds

Investment trusts can be incredibly powerful, but they are not automatically “better” than open-ended funds. Their closed-ended structure can be a real advantage, particularly for long-term investors, because the manager is not forced to sell assets to meet redemptions during periods of market stress. This can give them more freedom to invest with conviction, use gearing, and hold less liquid assets where appropriate. That is often where outperformance can come from.

However, investors need to understand the extra moving parts. Investment trusts trade on the stock market, so the share price can move to a discount or premium to the underlying assets. Gearing can amplify gains, but it can also magnify losses. Charges, liquidity, board oversight, dividend policy and the quality of the manager all matter.

The key point is suitability. Investment trusts can be excellent for the right investor with the right time horizon and risk appetite, but they are not a shortcut to better returns.

Investment trusts aren’t always better, they’re just different. Their closed-ended structure lets managers use gearing to boost returns, invest in illiquid assets, and may smooth dividends by retaining up to 15% of income in the fund. They can also trade at discounts to NAV, offering potential upside.
However, discounts can widen, and gearing magnifies losses.
Open-ended funds (OEICs) are simpler: are priced at NAV, are typically less volatile, and avoid the 0.5% stamp duty often paid on trusts.
Performance-wise, trusts frequently outperform in specialist areas like UK Small Caps. In liquid global markets, OEICs may lead due to lower-cost passive options. Costs also vary by scale: platform fees can sometimes make trusts cheaper for larger portfolios, while OEICs suit regular monthly savers.
Some investors use both: OEICs for core, stable exposure and trusts for income, specialist sectors, or long-term "satellite" opportunities.

Investment trusts are a bit of a paradox. They can offer both stability and volatility simultaneously, because their share prices move with supply and demand on the stock exchange rather than tracking the fund's net asset value (NAV) directly.
Gearing adds another layer. Trusts can borrow money to invest, which can amplify returns in a rising market. Performance data over the past decade shows what that can look like when conditions are favourable. In volatile markets, those same mechanics can accelerate losses.
Funds are a different proposition. They carry less day-to-day price volatility, you buy and sell at the daily NAV, and there is no waiting for the right moment to trade. They can suit investors who prefer to contribute regularly and want to know exactly what their money is doing.
One caveat is if large numbers of investors withdraw at the same time, it can create liquidity pressures for a fund. That is not something investment trusts are typically exposed to in the same way.