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Unpicking the investment trust buyback spree

What a spate of recent activity means for investors
July 28, 2022

Investment trusts have always had plenty of levers to pull when markets turn, with some managers using revenue reserves to boost ailing dividends or taking on debt to fund additional investments in more hopeful times.

A slightly lesser known set of levers relates to the issuance and buying of shares: a popular trust can issue shares and potentially rein in any share price premium to net asset value (NAV), while buybacks can be used in difficult periods to narrow a persistent discount.

The sector certainly issued plenty of shares earlier in the pandemic: Association of Investment Companies (AIC) data provided to Investors’ Chronicle show issuance of shares worth more than £6.2bn in 2020 and nearly £10.8bn in 2021. But 2022’s sheer volatility has seen discounts blow out, triggering a wave of buybacks. The sector bought back shares worth nearly £1.2bn in the first half (H1) of 2022 – the highest H1 total we’ve seen in five years. If such activity can seem reassuring, some trusts have been more active than others.

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