Investment trust discounts are at their highest level since the global financial crash in 2008, but investors should be wary of counting on high returns as a result.
According to investment bank Numis, the share price of the average investment trust in 2022 was trading at a 13% discount to the underlying net asset value. Such a level has not been seen on a consistent basis since the global financial crisis, with discounts only briefly trending lower through the start of the pandemic.
Although this could produce opportunities, the share price is only one of a number of factors that determine how an investment trust performs. The investment trusts which saw their discount widen the most in 2022 were tech and growth investors, beneficiaries of a decade of ultra-low interest rates.
The Augmentum Fintech trust, which invests in technology and media, saw its share price flip from a 11.54% premium to a 28.87% discount between December 2021 and December 2022. The Augmentum trust also invests in private equity, indicating that some of the change in share price to net asset value may be down to ‘valuation lag’.
Trusts that invest in private companies are not able to value their underlying holdings on a daily basis, so they can experience a three-to-four month lag in valuation reporting. This can be exacerbated by volatile markets like those seen in recent years, as company valuations move faster than the trusts’ ability to update their Nav.
Top five biggest negative movers in 2022
|
Discount/premium 31/12/21 |
Discount/premium 09/12/22 |
|
|
Augmentum Fintech |
11.54 |
-28.87 |
|
Chelverton Growth Trust |
-21.26 |
-47.32 |
|
RTW Venture |
4.09 |
-20.00 |
|
Baker Steel Resources |
-23.78 |
-43.43 |
|
Castelnau Group |
12.77 |
-4.56 |
A big discount to net asset value implies that investors do not think the present value of a trust’s holdings will be maintained in future.
Link: https://www.ftadviser.com/investments/2023/01/16/investment-trusts-with-biggest-discounts-in-2022