by Sam Benstead from interactive investor, 12th September 2023:
Investment trust investors are suffering this year, with the sector dropping around 2% so far in 2023, including dividends.
A key reason for the average trust being in the red is the widening of discounts, which in the spring reached their widest levels since the financial crisis of 2008…
There are two reasons that discounts are stubbornly wide: the impact of interest rates on trusts investing in “alternative” assets, and news rules around cost disclosure that are making some investment trusts less attractive to investors.
Alternative investment trusts that pay an income have grown in importance over the past decade, as investors have looked for income and returns away from mainstream-listed stocks and bonds due to falling yields…
Private Equity is another sector that has seen discounts widen significantly…
Investors are selling private equity trusts as they are sceptical about the net asset values of unlisted assets, which have been much more resilient than similar public market valuations…
James Carthew, head of research at investment trust analyst QuotedData, says that higher interest rates are diverting money away from alternative investment trusts, but because yields have now risen due to falling prices, the outflows should be slowing.
However, he says that another reason is that ongoing charges disclosures are penalising the use of investment companies…
Carthew says that discounts are now way too wide and it could be a good buying opportunity, particularly in the renewable energy sector.
“Renewables and infrastructure funds on 6%, 7%, 8%, even 9% yields – and often from dividends that are growing, frequently helped by strong inflation linkage in their revenues – are worth locking away now we think,” he said.
Read more here