Investment trust insider on discounts – James Carthew: trusts on big discounts that look too cheap
While all around us markets struggle the investment companies sector appears to be in reasonable health. The sector actually grew modestly in May, with £480m of new share issuance outpacing share buybacks of about £185m.
Actually, the sector has expanded every month this year and I have been pleasantly surprised by how many investment companies seem still able to raise additional funds despite the Covid-19 slump.
The listed fund returning the most cash consistently is Pershing Square Holdings (PSH). I find it surprising that, despite its commitment to buybacks and being one of the best-performing investment companies this year, it still trades on a 31% discount, which is way too cheap.
Another of this year’s star performers, Biotech Growth (BIOG) shrunk over the first three months of 2020. Investors who sold into the buybacks in January, February and March must be kicking themselves now, as its net asset value (NAV) hits new highs. However, again its shares trade on a fairly wide discount of about 9% below NAV.
I would also highlight Personal Assets (PNL) and Scottish Mortgage (SMT). Both have issued plenty of stock but stepped up to the plate and bought a lot back when investors ran for the exit. Generally, it looks as though most trusts were good about buying back shares when investors needed them to after the sell-off.
Discounts have widened this year – from a median of about 4.9% at the end of 2019 to 10.2% at the end of May – but most of that happened in February. The main reason is…
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NB: Remember I don’t get to pick the headline on Investment Trust Insider’s website, if it isn’t clear from the article, I wasn’t producing a list of trusts on big discounts that look too cheap – I would not recommend that investors get their bargepole out to go anywhere near JZ Capital and the aircraft leasing funds are probably too risky at the moment.