Interactive Investor

Discount Delver: the 10 cheapest trusts on 1 December 2023

We reveal the biggest investment trust discount changes over the past week.  

1st December 2023 11:12

by Kyle Caldwell from interactive investor

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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.  

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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Topping our table for the second week is Digital 9 Infrastructure (LSE:DGI9), which remains deeply out of favour following the scrapping of its second-quarter dividend and withdrawal of its 6p dividend target for its 2023 financial year. The trust focuses on what is sometimes called “the plumbing of the internet”, such as data centres and fibre-optic cables. However, as is common with other investment trusts that focus on a specialist area of the market, its income is a key attraction. A year ago, the trust was trading on a discount of -4.5%, but it now stands at nearly -60% to its net asset value (NAV). Over one year, its share price is down 47%.

However, the key trend this week is the widening of discounts for property trusts, reflected in Residential Secure Income (LSE:RESI), PRS REIT (LSE:PRSR)AEW UK REIT (LSE:AEWU) and Custodian Property Income REIT (LSE:CREI), all appearing in the top 10. As explained in our feature on the asset class in a rising interest rate environment, the yields that property must deliver to remain competitive with other asset classes increases. As a result, there's less demand for property investments.

However, as the feature explains it is not all doom and gloom. Many economists think that inflation in the UK is now slowing at a faster rate than previously expected, which may limit the need for higher interest rates. And there is growing hope that the deep recession predicted by the Bank of England will turn out to be relatively shallow. In which case, the sell-off in the property sector may have been overdone.

Investment trust Sector Current discount (%)Discount/premium change over past week* (%)
Digital 9 Infrastructure (LSE:DGI9)Infrastructure-68.85-10.00
Residential Secure Income (LSE:RESI)Property - UK Residential-43.17-7.60
PRS REIT (LSE:PRSR)Property - UK Residential-34.74-4.10
AEW UK REIT (LSE:AEWU)Property - UK Commercial-5.18-4.00
Hipgnosis Songs (LSE:SONG)Royalties-55.67-3.60
Foresight Sustainable Forestry (LSE:FSF)Farmland & Forestry-37.40-3.30
Custodian Property Income REIT (LSE:CREI)Property - UK Commercial-13.47-3.10
VPC Specialty Lending Investments (LSE:VSL)Debt - Direct Lending-23.57-3.10
NB Distressed Debt Inv Extended Life (LSE:NBDX)Debt - Loans & Bonds-51.05-3.00
Atrato Onsite Energy (LSE:ROOF)Renewable Energy Infrastructure-23.16-2.90

Source: Morningstar. *Data from close of trading 23 November 2023 to close of trading 30 November 2023.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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