Special Report on Investment Trusts 6: Discounts give tactical gains in a phoney war: Richard Lander weighs up the rival merits of two different vehicles

THE BATTLE between investment trusts and unit trusts often takes the shape of a phoney war.

There are, after all, a number of leading fund management groups which offer both types of vehicles to the public. Forked tongues abound as a group harps on one day about how investment trusts are the thing to be in and the next day about how only the foolish could not prefer unit trusts.

So what marks the main difference between these kissing cousins? Essentially, it is the old investment trust totem of the discount; while investment trusts are (usually) priced at a discount to assets, the price of a unit trust exactly reflects the value of the underlying asset, no more, no less. And while investment trusts stand alongside many of the shares they invest on the stock exchange lists, unit trusts are not quoted vehicles.

Marketing methods, traditionally, have also been poles apart. For years, unit trusts dominated the personal investment market. They went in for aggressive and innovative newspaper advertisements which had investors leaping for their chequebooks. And the armies of financial intermediaries along Britain's high streets could be relied on to put unit trust brochures at the top of the pile. They were well rewarded, taking a 3 per cent commission on sales.

Both those routes have been more-or-less blocked off for investment trusts. As quoted companies, they are no more able than ICI, Hanson or BTR to run advertisements saying 'clip the coupon, send us a cheque and buy our marvellous shares'. And intermediaries were curiously reluctant to recommend investment trusts when they recived no commission.

But the differences are narrowing fast. The entry of unit-trust giants such as Fidelity and M&G into investment trusts has given a fresh edge to their marketing, and several investment trust managers are now paying commission to intermediaries. At the same time, investment savings scheme plans with low dealing commissions provide a good selling point over unit trusts with their wide spreads between bid and offer prices.

Finally, comes the difference the invesment trust world always returns to: the performance gaps, which show that over periods of one, three, five and 10 years, the average investment trust returns more money to investors than the average unit trust. The final proof, as it were, of the pudding.