- Discounts in the investment trust sector are looking persistent
- Boards may not be in a position to erase them completely but still need to step in
- Investors should be selective in the hunt for opportunities
We all love a discount on the things we buy. Ten per cent off a favourite brand of watch; twenty per cent off a new phone? Sign us up. But when it comes to investing, 'cheap' is only good if it is followed by growth. And that growth needs to happen within our investment time horizon – before our financial circumstances require that we sell the assets.
Investment trust investors are grappling with this issue at the moment. The specific question is when – or, increasingly, whether – the discounts on which many trusts are trading will close up. The last two years have been brutal for the sector. At the end of December 2021 the typical trust was trading in line with its net asset value (NAV), at an average premium of 0.16 per cent according to data from the Association of Investment Companies (AIC). Fast forward to 19 September this year, and investment trusts excluding venture capital trusts (VCTs) were discounted by an average of 13.9 per cent.