Last month’s column (‘Investment trust discounts are about to turn a corner’, 18 April 2023) suggested that discounts may be close to their nadir. But what of the market more generally? Here, too, the omens are starting to look better despite the many hurdles. Accordingly, the portfolios are beginning to increase their equity exposure. This gradual process will look to capitalise on market volatility. And while one will seldom buy at the bottom, attractive company valuations will continue to provide helpful entry points for the long term.
The rationale
As regular readers know, the portfolios have been more defensively positioned in recent years and this has helped to mitigate against the investment trust index falling 17.8 per cent over the past 15 months to 31 March, when the UK market is up 3.4 per cent and overseas markets down 3.4 per cent. The logic is well-rehearsed. More volatile and ‘stickier’ inflation, higher interest and discount rates, and elevated growth valuations after a long period of outperformance have helped to create a difficult market environment and concomitant volatility. Other geopolitical and economic factors including the hardening of strategic alliances and shortening of supply chains, and continuing high debt levels and poor growth, have contributed.