James Crux, Shares Magazine, Thursday 29 May 2025:
Discounts to the value of assets held, and more rarely premiums, are par for the course when it comes to investment trusts. These are best understood as the gap between the share price and the net asset value (NAV). For example, a trust with 100p of assets per share and a 95p share price trades at a 5% discount to NAV. Discounts can give savvy investors the chance to buy assets for less than they are worth, at least in theory, but in practice it is important to do some digging and understand why a discount exists..
James Carthew, head of investment companies at QuotedData, observes that at the end of April 2025, just 20 of the 284 investment companies his firm follows were trading at a premium to NAV, while the median discount was 12%.
WHAT IS THE DISCOUNT TELLING YOU?
The level of discount at which you buy can affect the return you get as a shareholder; how much discounts matter really depends on your time horizon; short-term traders may invest at deep discounts in the hope they narrow quickly, whereas long-term investors tend to be less fixated on the gap between share price and NAV.
Discounts are usually down to a mixture of factors and there may be no simple fix or catalyst to bring the discount in..
BARGAINS GALORE OR CAVEAT EMPTOR?
QuotedData’s Carthew says trusts with liquid portfolios can be more aggressive about controlling their discounts and cites Bellevue Healthcare (BBH) as a recent example of a trust which has adopted an aggressive discount control mechanism. European Opportunities (EOT) is going down a different route,’ says Carthew, ‘implementing another 25% tender offer, but this has helped bring its discount down recently.’
Carthew says there is no right discount number for illiquid assets, but 20–25% ‘looks a bit high and it is worth remembering often these portfolios can be realised at asset value or higher, if you are prepared to be patient.’ Great recent examples of this have been the bids for Harmony Energy Income (HEIT), which ended being struck at asset value, and BBGI Global Infrastructure (BBGI), one of the most reliable infrastructure trusts, which is being taken private at a small premium.
The QuotedData analyst sees some bargains on offer, but warns some of these are riskier than others. HydrogenOne’s (HGEN) 75% discount seems ‘excessive, but it is investing in businesses that are still at an early stage’, says Carthew..
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