Closed funds are consistently undervalued, subject to a break up if in fact they do hold anything of real value and are a captive audience when it comes to fee generation.
Interesting points
Jim but it is not because they are closed that they are undervalued. It is because they are traded in the market. If open funds were similarly priced they too would be undervalued.
Take the Aberdeen UK Tracker Trust - sorry Boss I know it is an individual share but I use it in the interests of academic research into the merits of diversification
Its share price stands at a 3.5% discount to its NAV. Why? One possible reason is the fees but at an all in 0.29% p.a. that hardly justifies a 3.5% discount. In any case it has been extremely good at tracking the FTSE All Share so performance doesn't justify the discount.
No, the reason is that the sum of the parts taken individually is worth slightly more to the market than their sum taken collectively. In other words the market requires a discount for diversification. This is not to negate my earlier comments that the market does not give a premium for diversifiable risk.
Let me try a very strained metaphor. Most sweets are sold in individual packs e.g. smarties, polo mints, maltesers etc. Now if one tried to sell a combo pack of say 10 different sweets there would be two contrasting reactions. There would be those who welcome the variety, i.e. who don't like too much of the same thing. These are the diversifiers. But there will be many who will be put off because say one of the combo just doesn't take their fancy and this is not compensated by the variety. These are the NAV discounters. So in answer to OP, yes I can see how some investors would be concentrators, but for those who just don't have the time or inclination diversification seems to be the correct option. I still don't believe anybody has an intrinsic skill for picking winners.
On the captive management, I'm not sure I buy the point. The investment manager of the £330M AUKT is cited as David Jones. I would say David is extremely committed to achieving the fund's goals i.e. to match or FTSE All Share, his job depends on it, and the results over recent years support that view.
BTW as a side point, was it ever sorted out whether Exit Tax will fall in line with DIRT over the next four years. I really think Exit Tax funds are bad news.