By Jean-Baptiste Andrieux, Reporter, Trustnet, 15 August 2023:
Investment trusts on discounts offer opportunities for investors to gain exposure to assets at less than their book value.
This may sound like an attractive bargain, but there is no guarantee that the gap between the share price and the net asset value per share will close. In fact, it could widen even further.
Whether a discount presents an opportunity is entirely idiosyncratic to each trust, which means it can be hard to sort the chaff from the wheat.
Mick Gilligan, head of managed portfolio services and partner at Killik & Co, said that opportunities are, generally speaking, where underlying assets are liquid…
David Johnson, analyst at QuotedData said: “This kind of cyclicality should not be viewed as a value trap in my opinion, as the possible catalyst for a discount narrowing (or widening) is clear. However, investors need to have the patience to wait for a style of investing to come into vogue.
“For example, the breakout of the war in the Ukraine was, with hindsight, a clear catalyst for the reversal in the discount of energy stocks, but the amount of patience required to wait for such a catalyst can make trusts feel like value traps.”
He noted that UK and European strategies are in this predicament as the market outlook for these regions has been so negative that it has pushed investment trusts in those sectors into persistent discounts. Darius McDermott, managing director of Chelsea Financial Services, added that it is also true for trusts investing in China due to the global malaise towards Chinese equities.
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