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Four ways to invest in the same fund and save money

Fund managers often give investors different ways to access the same (or substantially similar) fund, with distinct entry costs. In some cases, investors can switch from one to the other for an arbitrage gain.

While fund managers would hate the analogy, it's akin to the way some producers of popular consumer products like baked beans, toilet paper or sugar manufacture for their own label, and repackage the same product for the ‘home brands’ of major supermarkets. Why buy the expensive version when the only difference is the label on the tin?

Is it worth the effort?

It doesn’t sound like much, but when investing, 1% is a lot. If a fund manager could guarantee to outperform an index by 1% per annum over time, the world would beat a path to their door. The global momentum to passive investing (in the US, passive is now over half of inflows into domestic equities, although less so in Australia) is due to the inability of most active fund managers to beat their benchmarks after fees, and 1% would be more than enough for great success.

And 1% compounded over time delivers surprising results – although sorry to disappoint that there is no firm evidence that Albert Einstein ever called compound interest ‘the eighth wonder of the world’ or ‘the most powerful force in the universe’. Yes, Google it and there are thousands of articles quoting the phrases, but nobody can attribute the source.

No matter, $100,000 compounded at 6% annually for 20 years gives $320,714 while 5% results in $265,330, or $55,384 less. That’s all interest, no additional deposits.

What if an investor could make 10% instantly up front, with exactly the same fund manager in the same fund? In the above example, changing $100,000 to $110,000 at the start would give $352,785 at 6%, or an extra $32,071 for only $10,000 more.

With some fund managers, investors are missing this opportunity every day.

Closed-ended versus open-ended funds

Shares in closed-end funds such as Listed Investment Companies (LICs) or Listed Investment Trusts (LITs) can be bought or sold on an exchange but the total number of shares on issue does not change. There is no inflow or outflow for the fund manager. This contrasts with Exchange-Traded Funds (ETF) where units are created or repaid in response to demand.

Consequently, the price of a LIC or LIT is set by the market with some reference to the Net Tangible Asset (NTA) value but often at significant discounts or premiums, whereas ETFs trade around NTA.

Let’s explore the opportunity when a closed-end fund trades at either a premium or a discount and the same fund manager also offers an open-ended fund with the same or similar investments.

1. Fund trading at a discount

Let’s use a real-world example of Magellan. Remember, this strategy makes no judgement about whether an investment with Magellan is appropriate. This is about investing in the cheaper vehicle.

Magellan has worked hard to give investors multiple entry points into its funds, including developing the Active ETF structure in Australia which many others have copied.

But Magellan still offers a closed-end fund on the exchange, ASX:MGF. It is a unit class of the Magellan Global Fund, the first fund offered by the manager in 2007, and as at the end of February 2022, MGF held balances of $2.9 billion.

According to the Bell Potter LIC Report of 11 March 2022, MGF has traded as follows:

Features of Magellan's ASX:MGF

Current share price


Indicative pre-tax NTA


Indicative discount (intra month)


Average discount 3 mths


Average discount 6 mths


Average discount 12 mths


Discount range 5 years - low


Discount range 5 years - high


Meanwhile, the Magellan Global Fund is available as an open class, or an Active ETF, which trades on the ASX as MGOC. Same assets, same management fee, same performance fee, priced at NTA plus or minus the trading spread (usually 1 cent).

Why hold MGOC at NTA when MGF is available at a discount which might be as high as 17%, and is regularly 10% or more? There are small costs of switching – brokerage and the spread – but it’s worth checking for opportunity.

At the time of writing (22 March 2022), the latest reported pre-tax NTA of MGF is $1.8057 and MGF last traded at $1.495, a discount of -17.2%.

What if an investor has accessed this fund off-exchange, either through a platform or directly with Magellan? All the unlisted funds are open-ended, and entry and exit prices are at the value of the assets adjusted for a buy/sell spread, so the opportunity is the same as with MGOC. The live iNAV of Magellan funds can be checked here.

Some other examples:

  • Platinum Asset Management offers two LICs, a global fund (ASX:PMC) and an Asian fund (ASX:PAI) both trading at a discount to NTA of about 8%. Their portfolios are similar to the unlisted Platinum International Fund and Platinum Asia Fund with slight differences in the investment guidelines.
  • QV Equities (ASX:QVE) is managed by Anton Tagliaferro's Investors Mutual. QVE is trading at about $1 versus a pre-tax NTA of $1.10 for a 10% discount.
  • Perpetual Equity Investment (ASX:PIC) currently trades around its NTA but its discount has been as high as 13%. In this case, there is no directly comparable Perpetual unlisted fund because PIC allows up to 35% in global shares. However, for a Perpetual investor looking for some global exposure at a time when PIC is at a discount, it's worth comparing portfolios.
  • EC Pohl manages about $2.8 billion mainly in unlisted funds, but it also offers three LICs: Flagship Investments (ASX:FSI, market cap $61 million), ECP Emerging Growth (ASX:ECP, market cap $23 million) and Global Masters (ASX:GFL, market cap $27 million). Although the latest traded price of both ECP and GFL are at large discounts to NTA, the LICs are small and liquidity is poor, and switching decent volumes may move the price.

2. Fund trading at a premium

Using the same rationale, a LIC or LIT trading at a premium to NTA represents a selling opportunity, provided the manager offers an equivalent unlisted fund at NTA.

Take the example of Plato Income Maximiser (ASX:PL8). Plato is part of the Pinnacle group and has successfully encouraged investors to focus on the income generated and less on the NTA. According to the Bell Potter report, the grossed-up yield on the fund is 6.5%, and this attracts yield-hungry investors willing to pay a premium. It’s the playbook Geoff Wilson has used successfully for many years, and his funds such as WAM Active (ASX:WAA) and WAM research (ASX:WAX) also trade at a premium. However, Wilson is a LIC-only fund manager and there are no unlisted or open-ended funds to arbitrage into.

Features of Plato Income Maximiser, ASX:PL8

Share price


Indicative pre-tax NTA


Indicative premium


3 months


6 months


12 months


Discount range 5 years – low


Premium range 5 years – high


Source: Bell Potter, 12/3/22


Plato offers a large unlisted open-ended fund where, by definition, entry and exit are at NTA with a small spread.

What if you can’t be bothered with the paperwork of an unlisted investment or do not invest through a platform. Is it all too much trouble? No.

Plato offers the unlisted Australian Shares Income A fund with the same portfolio as PL8. In fact, PL8 owns units in this unlisted fund. The unlisted fund is offered under the ASX’s mFund service as PLI01. Execution is done through any broker in the same way as a share, although the price is set at the close of business, it is not a live price during the day.

This is also an opportunity for a new investor who likes Plato’s style and its fund but cannot stomach a 10% premium of the listed PL8. Invest in the unlisted version at NTA and get 10% more for your money. Note that there are some differences. PL8 pays monthly distributions that are fully franked at a consistent level (0.5 cents per month) while the fund pays quarterly distributions that are lumpy as it is a trust not a LIC. Some investors are happy to pay a premium for this regular income stream. 

At the time of writing, the latest reported pre-tax NTA of PL8 is $1.09 and it last traded at $1.21, a premium of 10%.

3. Similar funds offered with lower fees

Cboe (formerly Chi-X) offers a range of listed funds which are often cheaper than the unlisted or ASX-domiciled version. The full list of funds is available here including leading names such as Australian Ethical, Elstree, Coolabah, Schroders, Janus Henderson and Kapstream. Check relative fees before investing.

Continuing the Magellan example, there is a cheaper range of funds offered via Cboe and tradeable in the same way as any share on an exchange. For example, rather than investing in either MGF or MGOC, the MFG Core International Fund (CAX:MCSG) is a Magellan global fund but its assets are somewhat different to MGF or MGOC. The advantage is that the management fee on MCSG is only 0.5% versus 1.35% on MGF, providing a permanent 0.85% advantage.

4. Enter the fund via an option or note

We have previously described the opportunity to invest in the equity market via an option or convertible note. Take the Perpetual LIC mentioned above (ASX:PIC). The related options (ASX:PICOA) give the right to buy PIC at $1.35 exercisable on or before 2 September 2022. At the time of writing, the latest pre-tax NTA is $1.37 and the option trades at $0.005. That is, half a cent. An investor can buy (subject to liquidity) one million options for $5,000 or 100,000 options for $500, plus brokerage. Read the other terms of the option but it gives the right but not the obligation to buy in six months. The investor still needs to outlay the $1.35 on exercise but the most they can lose before the exercise date is half a cent (at time of writing, prices will change).

Again, this article makes no judgement about Perpetual Investments, it is explaining alternatives, not recommending managers.

Other things to watch for

Here are a few things to consider before making a switch or investing fresh capital:

  1. While a LIC or LIT bought at a discount may look like great value, it could move into deeper discount.
  2. Selling an investment may trigger taxable capital gains.
  3. In times of market stress, liquidity can dry up for some closed-end funds, whereas open-ended funds can usually (not always) sell the underlying assets.
  4. If an unlisted version of a fund is held on a platform for ease of administration, selling and switching to a listed fund may create some extra work.
  5. Although brokerage cost is highly competitive including some ‘free’ offers, the cost of transacting should be checked.
  6. An unlisted fund does not offer real-time pricing on an exchange in the same way as an ETF, LIC or LIT. The price is usually end-of-day, so watch the timing difference on the buy and sell.

But when the arbitrage is 10%, that’s a lot of margin to cover costs.

Investors cannot control what the stockmarket will do, nor how a particular manager will perform relative to the market benchmark. But investors can control their own costs, which is why many have jumped to cheap index funds. But buying into an active manager at a 10%+ discount may work out cheaper than an index fund even if the manager only matches index performance.

If it's good enough for your baked beans …

Home-brand baked beans are often the same product as the premium brand, with a different label. Checking whether your fund has a different entry price for the same fund could save you more than enough to buy whatever brand of baked beans you desire.


Graham Hand is Editor-at-Large for Firstlinks. This article is general information and does not consider the circumstances of any investor. Prices are correct at time of writing and the opportunities may vary over time. Disclosure: Magellan, Pinnacle, Perpetual and Cboe are sponsors of Firstlinks. Graham owns some of the funds mentioned in this article including the option PICOA.


March 28, 2022

While I'm not a great index fan & like well run active funds, the alternative is to simply invest in a Index ETF / Index Fund & do just as well, if not better, than most of these funds as listed above. There are few international managers seriously outperforming the international index currently.

Don Chuah
March 26, 2022

I am doing my own SMSF, what is the best ETF to invest in ,presently?

Graham Wright
March 26, 2022

Glad to see this article that is not critical of the discount/premium of listed products. An issue not mentioned here is that LICs in some instances are the only access to some closed end funds for small retail investors because the entry requirements exceed the capability of smaller investors. Yet, via the LIC, they get all the management expertise and benefits that large investors seek via their restricted entry points. One example here is Tribeca, a fund investing in global natural resources stocks. The discount for LIC investors can vary between -25+% and 0 and I suspect that is influenced by the appetite of investors for investing in that global natural resources sector at any time. And I know from experience that the investment managers will talk to me and provide me with their viewpoints as if I was a sophisticated client. But these opportunities don't land in your lap. You need to research and understand your product then find it is yours for your taking.

March 23, 2022

Yep, an LIT or LIC may be at a discount but it may still be at that or worse when you sell, so added risk (both up and down)…beans stay the same if you know the supplier and the supplier doesn’t change

March 23, 2022

This has been a productive strategy for me, particularly when market stress limits liquidity and momentary steep discounts appear in LIC/LITs.

Another thing to watch out for in arbitrage is to understand the implications of realising CGT obligations when you switch.

March 23, 2022

While the liquidity is poor on smaller LICs so it's hard to get set, there are sometimes sellers at even bigger discounts if you're willing to wait.


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