Investment trust discounts are wide and share buybacks are on the rise. Analysts at Winterflood noted in early August that buybacks amounted to £2.2bn so far in 2023, up 53 per cent versus the equivalent period in 2022.
What’s interesting is the extent to which trusts focused on alternatives are involved. Private equity behemoth Pantheon International (PIN) recently outlined a chunky £200mn buyback programme, with others including Seraphim Space (SSIT) also setting out plans to do this.
An interesting theory mooted by the Winterflood team is that the proliferation of buyback programmes might help investment trust discounts to find a floor in such areas and, if this is the case, bargain hunters should get a move on. To give one example of price action, Seraphim announced its plans in July and was the best-performing trust for that month.
And yet buybacks remain divisive. Stifel analysts argued in July that buybacks were no “magic bullet” against persistent discounts, pointing to names such as Cordiant Digital Infrastructure (CORD) which saw its shares' buyback-related gains fade away over time. Each buyback also has its own individual dynamics and alternatives trusts, for example, need a robust enough balance sheet or liquid enough portfolio to fund them.
Many trust shares do look like a bargain, but we must ask if the investment teams can’t find better value themselves. Invesco Asia (IAT) chairman Neil Rogan, explaining why no buybacks had been undertaken in the year to the end of April, said: “The next period is quite likely to prove to be a very attractive long-term opportunity for shareholders. We simply do not want to stand in their way.”
