Discount Delver: the 10 cheapest trusts on 3 May 2024

Investment trusts, due to their closed-ended structure, offer investors the chance of picking up a potential bargain. Such an opportunity arises when a trust’s share price is lower than the underlying investments held by the trust (the net asset value, or NAV).   

However, a trust trading on a discount to NAV is not necessarily a buying opportunity. There’s likely a good reason why the trust is cheap, such as subdued short- or long-term performance, or poor investor sentiment towards how it invests.   

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In our weekly series, interactive investor highlights the 10 biggest investment trust discount moves over the past week. We publish this article every Friday, using data up to the close of trading the previous day.   

In total, nearly 400 investment trusts have been screened, with the data sourced from Morningstar. Venture Capital Trusts (VCTs) have been excluded. We also strip out trusts with less than £20 million in assets and those that are not available on the interactive investor platform. 

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There were only small discount movements in the investment trust universe over the past week.

The biggest riser, Premier Miton Global Renewables Trust (LSE:PMGR), saw its discount edge up by just over four percentage points to -19.8%. Its discount reflects continued weak sentiment towards the area it focuses on, with trusts in the sector regularly appearing in our table over the past 18 months.

While the yields for renewable energy infrastructure investment trusts are higher, investors have been focusing on lower-risk areas where yields have risen. For example, cash-like money market funds are offering yields of around 5%.

Premier Miton Global Renewables Trust invests in investment trusts across the sector and companies that are renewable energy developers. James Smith, its fund manager, says the higher yields on offer, of around 7% to 8%, versus cash and gilts, can make a huge difference over the long term.

Smith says: “For me, a fairer comparator (rather than money market funds) is inflation-linked exchange-traded funds (ETFs), due to much of the underlying revenues for renewable energy infrastructure trusts being inflation linked. When you compare the two, there’s a big difference in yield and, over the long term, it can make a huge difference.”

He argues that the sector “has been oversold with the market being overly fixated on interest rates”.

Smith adds: “The discounts and the yields on offer mean that investors are being paid to wait for a recovery to play out. Interest rate cuts would be helpful, but even without that happening the fact that renewable energy infrastructure trusts have been growing their earnings should be enough to narrow discounts and boost share prices at these low levels.”

Source: Morningstar. *Data from close of trading 25 April 2024 to close of trading 2 May 2024.