by Kyle Caldwell from interactive investor, 8th August 2022:
Investment trust bargains are back, with the average discount moving from a lowly 2.2% at the start of this year to 7.4% today.
Prior to the strong month for stock markets in July, that average discount figure was even wider, hitting a 12-month peak of above 10%. To put today’s discount levels into context, figures from analyst Winterflood show that over the last 10 years discounts have averaged 4.7%, ranging between 0.6% and 21.3%.
In short, the rise in discounts is down to investment trusts having their worst first half of a year in more than 30 years. Over this period, most stock markets were in negative territory, with Russia’s invasion of Ukraine, rising inflation and increases in interest rates all contributing to negative investor sentiment.
Overall, investment trusts have fared worse than open-ended funds so far in 2022, due to “gearing”, which leads to greater losses per share when share prices fall. Over the long term, gearing can turbocharge returns.
Discounts can work in investors’ favour, but it is important to think long term and to be patient. If you buy at the right time, resulting in a high discount falling to a low one, or even moving to a premium, the share price return will be boosted.
Our investment trust Bargain Hunter column usually scours the market for investment trusts trading above their one-year average discount figure. But given that discounts have risen notably, dozens of trusts are looking potentially cheap on this measure.
With this in mind, we asked analyst QuotedData to find the investment trusts trading on the biggest discount compared to their five-year average discount. The table below highlights 15 trusts, ranked in order of the biggest percentage point difference on this measure. Thirteen of the 15 are trading on discounts, meaning their share price is less than the underlying investments – the net asset value (NAV) – are worth.
Read more here