Investment trust insider on discount opportunities – James Carthew: Discount dislocations offer opportunities
Today, at the same time as investors get to grips with higher inflation and interest rates, they are afflicted by wider share price discounts to net asset values (NAV) across the investment companies sector.
Many years ago a former colleague of mine reckoned there was a direct link between the cost of capital (interest rates) and discounts, and it certainly feels as though that is true.
However, I could not really fathom exactly why that should be the case then and still can’t. It might be as simple as investors having a lower risk appetite in periods of higher rates.
Regardless, while the median investment company could be bought at a 6% discount to NAV at the end of 2021, by the end of 2022 that median discount had widened to 10.7%. In addition, while 72% of funds were trading at a discount at the end of 2021, by the end of 2022 that figure was 86%.
Within the numbers, there have been some spectacular deratings for individual closed-end funds. For example…. read more here