By Matteo Anelli, Senior reporter, Trustnet, 07 March 2024:
In the investment trusts universe wide discounts are often linked to higher long-term returns – and the data backs up this hypothesis.
Since 2018, investing in trusts with a double-digit discount have returned an annualised 13.6% in the following five years, a recent study by the Association of Investment Companies (AIC) showed. That is 4.3 percentage points higher than trusts that traded at a discount of less than 5%.
Currently, some 31% of trusts with at least a five-year track record are now trading at double digit discounts, according to data from QuotedData.
But just betting on a big discount may not be the most prudent strategy. For example, some trusts always trade on wide share prices relative to their net asset value (NAV) – meaning there is little catalyst for change.
As such, Trustnet looks at those trading at the widest discounts relative to their five-year average, suggesting they are cheaper than usual. The data spans from 31 January 2019 to 22 February 2024.
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