by Kyle Caldwell, interactive investor, 11th October 2022:
Investment trust discounts have widened notably since the beginning of the year, rising from 1.5% to 15.7% for the average discount, according to analyst Winterflood.
The bear market that’s played out this year in response to high levels of inflation, increases in interest rates and geopolitical tensions, most notably Russia’s invasion of Ukraine, has been a big factor. The ability of being able to gear (borrow to invest) has also hindered both performance and investor sentiment. In a falling market, gearing magnifies losses, which is why funds have held up better than investment trusts so far this year.
As ever, with investment trust discounts it is important to bear in mind there will be a reason. It could be related to poor investor sentiment towards the region it invests in or the way in which it invests in terms of investment style. Moreover, the discount could go higher, and there are no guarantees the discount will over time reduce towards the value of the underlying investments held in the trust – the net asset value (NAV).
It is, however, unusual to see so many investment trusts trading on double-digit discounts across a variety of sectors and regions. For brave investors, those buying today and thinking long term, discounts offer the chance to try and ‘buy low’.
With discounts aplenty it is important to delve deeper. With this in mind we teamed up with QuotedData to screen the universe to identify the investment trusts trading at or close to their biggest discount over the past five years. This time period includes the first three months of 2020 – when stock markets fell heavily in response to Covid-19 turning into a pandemic. During those three months investment trust discounts hit a high of 21.4%. Therefore, there’s only a small number of trusts that today are trading close to or wider than their Covid-19 discount high…
Six of the 12 trusts invest in UK shares: Murray Income Trust Ord , Baillie Gifford UK Growth Trust, Mercantile, Aberforth Smaller Companies, and abrdn UK Smaller Companies Growth.
Read more here