How volatile are investment companies compared to open-ended counterparts?

Nick Britton, head of training at the AIC, compares the historical volatility and risk of investment companies and open-ended funds.

It is a common belief that investments that have higher historical volatility are more risky. While not everyone is totally convinced by this theory, let us take it as read for the purposes of this article. It is another common belief that investment company returns are more volatile than those of open-ended funds. There are two good reasons why that should be the case: discounts often widen when markets fall (the infamous 'double whammy') and gearing acts as a magnifier of both positive and negative returns. A glance at actual standard deviation figures over the past ten years seems ...