By Tom Aylott, Reporter, Trustnet, 30 September 2022:
Those holding UK trusts over the past decade could have seen a sizable return on their investment, with the IT UK Equity Income and IT UK All Companies sectors up 83.8% and 69.5% respectively, according to data from QuotedData.
But it is the trusts in the IT UK Smaller Companies sector that have particularly stood out. The sector as a whole ranked within the top quartile of all investment trust sectors over the past decade, with the average trust making 164.9%.
However, high inflation, tightening monetary policy and unpopular government budgeting has dragged these sectors into the red in 2022.
While the performance of the underlying holdings has been hit, these trusts have also been hampered by worsening investor sentiment. As such, people have sold more than the underlying holdings have dropped, meaning that many UK trusts are currently trading at a significant discount to their five-year average.
Although it is difficult to buy at a time when most others are selling, the widening discounts have opened up a tactical entry point for investors.
In the table below, we removed any trusts below £10m, as discounts can be moved by small trading volumes, as well as those that have widened their discount by less than 5 percentage points.
Trusts in the IT UK Smaller Companies sector were the worst hit, with the sector average discount at 18.2% (4.9 percentage points lower than the five-year average of 13.3%).
In fact, more than half (60%) of the trusts on the list were in the IT UK Smaller Companies sector.
Trusts investing primarily in small-cap companies are very reliant on the economy performing well, which has not been the case this year, according to James Carthew, head of investment companies at QuotedData.
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