Interactive Investor

Discount Delver: the 10 cheapest trusts on 12 May 2023

12th May 2023 10:12

by Kyle Caldwell from interactive investor

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

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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.  

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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.

The biggest move over the past week is Menhaden Resource Efficiency (LSE:MHN), which saw its discount edge up 4.1% to trade at 37.3%. It invests in companies delivering or benefiting from the efficient use of energy and resources.

Second and third in our table are abrdn Latin American Income Fund (LSE:ALAI) and Majedie Investments (LSE:MAJE), which are now trading on discounts of 8.7% and 13%. 

However, the key trend in our table is the continued low sentiment towards commercial property. 

Commercial property is a bellwether for the wider economy, which makes it an economically sensitive asset class. The commercial property market is made up primarily of shops and offices, as well as industrial buildings, such as warehouses.

When economic growth is stagnant, which is the case at the moment, there’s less demand for most types of commercial property.  In turn, this puts downward pressure on valuations. 

However, the bigger driver that’s causing investors to give property the cold shoulder at the moment is interest rates, which this week reached 4.5% in the UK. Higher interest rates have led to higher income returns on lower risk investments – such as cash and government bonds. In turn, this has caused a re-pricing of risk assets. As a result, the yields that property must deliver to remain competitive with other asset classes climb higher. All other things being equal, that means lower share prices.

For investment trusts that invest in commercial property, the headwinds and negative sentiment towards the asset class has resulted in big differences between the value of their underlying assets and the share price. This is evidenced by Schroder Real Estate Invest (LSE:SREI), Urban Logistics REIT (LSE:SHED), and Ediston Property Investment Company (LSE:EPIC), trading on discounts of 30%, 26.9%, and 22.6%.

Over the past week the trio have seen their discounts edge further upwards, by 2.7% to 2.8%. 

Investment trustSectorDiscount/premium change over past week* (%)Current discount (%)
Menhaden Resource Efficiency (LSE:MHN)Environmental-4.10-37.31
abrdn Latin American Income Fund (LSE:ALAI)Latin America-4.00-8.71
Majedie Investments (LSE:MAJE)Flexible Investment-3.60-13.00
Scottish Oriental Smaller Cos (LSE:SST)Asia Pacific Smaller Companies-3.50-16.01
Schroders Capital Global Innov Trust (LSE:INOV)Growth Capital-3.20-47.64
Strategic Equity Capital (LSE:SEC)UK Smaller Companies-3.20-11.87
Schroder Real Estate Invest (LSE:SREI)Property - UK Commercial-2.80-29.96
Ediston Property Investment Company (LSE:EPIC)Property - UK Commercial-2.70-22.62
Urban Logistics REIT (LSE:SHED)Property - UK Logistics-2.70-26.94
BlackRock Energy and Resources (LSE:BERI)Commodities & Natural Resources-2.50-8.07

Source: Morningstar. *Data from close of trading 4 May 2023 to close of trading 11 May 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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