- Persistently wide discounts is encouraging consolidation
- Our featured trusts are well placed for the long term
Having enjoyed a ‘Goldilocks’ spell until the end of 2021, investment trusts are seeing a period of consolidation with some trusts swallowed by larger ones. Furthermore, the management companies are on a charm offensive, looking to sweep up the retail investor capital that helps provide liquidity at the margins for trust shares and help close discounts. There are great closed funds out there, but retail investors should ask whether they’re likely to be doing more for a trust than it’s doing for them.
Times continue to be tough for investment trusts. The August edition of Winterflood Investment Trust’s monthly review highlights the FTSE All Share Closed End Investment index delivered negative total returns of -2.2 per cent versus the positive 2.7 per cent for the FTSE All Share in the first eight months of 2023.
Wide discounts continue to be a problem for trusts, 62 per cent of trusts are in negative territory to the end of August for share price returns, even though that figure is much lower for Net Asset Value returns (39 per cent negative). The backdrop of sustained wide discounts is fuelling consolidation in the sector with merger and takeover activity ramping up.
On the plus side, this will improve the eco-system for investment trust investors. For systems like the Alpha investment trust screen, the clean-out should set the system up to flag some interesting trusts and flush out some of the questionable inclusions that have popped up in our mechanical lists in recent months. Retail investors are desired by trusts to help close those discounts, but it is important to be discerning. These portfolios aren’t a list to buy, but they do flag some useful ideas for when macro conditions improve.
Our two featured trusts this month are amongst the best in their class and although both have suffered from discount widening, they are decently placed to perform strongly over the long term.
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