AGMs are an investment trust's unique selling proposition that investors ought to take advantage of

Aside from being a legal necessity, shareholder meetings serve as a means of communication with investors

BFIA does not have a rigid approach to investing. UK stocks, foreign stocks, active funds, passive funds, and more should all be considered. Nevertheless, when it comes to our coverage of funds, we have a tendency to favor investment trusts over open-ended funds. The reason for this is that we believe that there are certain structural advantages to closed-end funds for a variety of investment types, in addition to the fact that investment trusts receive far less attention than open-ended funds and that we can add more value by concentrating on them.

Compared to other investors, I find some of the purported benefits of trusts to be less compelling. Yes, it's fantastic to be able to purchase at a short-term discount to net asset value (NAV), but it's less alluring if the discounts are still significant when you sell. Persistent discounts have turned into a sector-wide existential problem (see chart). Although borrowing to invest, or gearing, can theoretically increase returns, poor management combined with gearing results in larger losses.

From 1996 to 2021, a line graph illustrating the average investment trust discounts as a percentage illustrates how discounts have changed over time.

Without a doubt, closed-end structures work best for more illiquid markets and alternative assets. Large-cap, developed-market stocks are examples of highly liquid assets where the benefit is less pronounced. For instance, I had a meeting with the Guinness European Equity Income Fund earlier this month. This is a high-quality income fund with a transparent procedure and a strong track record. I would be pleased to select it as a Europe fund, despite my preference for trusts. For example, the managers of the open-ended Trojan Global Income Fund manage the same portfolio as the STS Global Income & Growth Trust (LSE: STS). Although I would likely purchase the trust, I would also consider the open-ended fund to be a good option for a defensive equity fund with minimal exposure to the US.

An advantage for investment trusts.

However, one structural advantage of trusts is frequently disregarded. The fund manager is in charge of an open-ended fund. An investment trust is a separate legal entity. Its board, which is in charge of protecting shareholders, has the authority to fire the manager if they are not performing up to par. Some boards are more thorough than others. As a result, they are required, like all businesses, to have annual general meetings where the manager updates investors. You will frequently hear a lot of great questions from highly involved investors who are risking their own money if you attend these.

Thankfully, a lot of trusts understand that AGMs are an opportunity to showcase themselves to possible investors rather than merely a legal necessity. One of the BFIA's preferred long-term investments in India, the India Capital Growth Fund (LSE: IGC), recently had its annual general meeting. It moved its meetings from Guernsey to London, where they were well attended. I plan to attend the AGM of the Vietnam Enterprise Investments (LSE: VEIL) forum this week; you can sign up to attend here. This is a unique selling proposition that more trusts should take advantage of in a market where active ETFswhich won't be holding AGMswill pose an increasing threat to many trusts.