Matthew Read, Investment Week, 09 November 2023:
Investment trust ratings, like equity markets in general, have for the past 18 months been impacted by the higher rates of inflation and the interest rate rises that have accompanied these.
Longer duration assets – such as growth stocks that tend to have a higher proportion of their value discounted from some point in the future – have suffered the most, but with the risk of recession having increased, very few areas have been left unscathed as investors have sought the safety of value or more defensive stocks.
Some have pulled money out of equities altogether in favour of fixed income positions that now offer better returns than they have done for a long time.
Many investment trust holders have suffered further as the funds they invest in have not only seen the value of their underlying holdings de-rate but their discounts to net asset value have widened as well…
Widening discounts are not good for shareholders as they will not be able to realise as much value from their investments should they wish to sell, so what can boards do about this?
Discounts/premiums reflect the balance between supply and demand for an investment company’s shares and these can be driven by a range of factors.
Where there is a structural reason contributing to a discount, such as the market preferring lower debt levels, more liquidity or greater efficiencies, or perhaps wanting evidence that NAVs are justified, then corporate actions designed to address these should be welcome and help lower the discount over the longer-term.
Read more here