By Matteo Anelli, Senior reporter, Trustnet, 27 March 2024:
Investment companies are notoriously cheap, with more than 30% currently trading at double-digit discounts, as a recent study showed.
Yet there is no single headwind that has caused this phenomenon, and no silver bullet that will get discounts back to more normal levels, according to QuotedData analyst David Johnson.
A combination of factors are weighing down on the industry as a whole, including changes in investor behaviour, higher interest rates and cost disclosure rules.
Discounts over the past five years have been widening “virtually across the board”, he said, with only a few sectors bucking the trend – namely India, China, country specialists, hedge funds and insurance. The latter has had the greatest re-appreciation over the past five years, as shown in the table below.
Investors’ behaviour and risk attitudes
Rising global interest rates have led to a huge shake-up in investor behaviour and this can also be seen in the trust world. For example, higher yields on bonds and interest rates on cash deposits have diverted money that might otherwise have been invested in trusts, explained the analyst.
“The biggest impact that the sell-off in risk assets has had is the greater scrutiny around unlisted assets, with rising rates leading to increased uncertainty around the sector, and thus wider rates,” he said. “It has also placed pressure on indebted trusts, with Digital 9 Infrastructure being one such example.”
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