Interactive Investor

Discount Delver: the 10 cheapest trusts on 14 July 2023

14th July 2023 10:55

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.

Investment trusts generating income outside the two mainstream asset classes, shares and bonds, continue to see their discounts widen in response to interest rate rises.

Rate rises have triggered a re-pricing of risk assets due to the fact that investors can, for the first time in more than a decade, obtain a decent level of income on low-risk assets such as cash and bonds.

With yields of 4% and 5% available on cash and relatively low-risk bonds, there’s less appeal in trying to obtain bigger returns for a higher amount of risk.

As a result, discounts for investment trusts investing in alternative assets have been rising. Over the past week, the biggest discount movers include: Digital 9 Infrastructure (LSE:DGI9), Golden Prospect Precious Metal (LSE:GPM), Life Science REIT(LSE:LABS), M&G Credit Income Investment (LSE:MGCI), and Downing Renewables & Infrastructure (LSE:DORE).

Another trend is weak investor sentiment for UK equity investment trusts. It extends to UK equity funds, which leaves many pros perplexed. They point out that the UK market has plenty of bargain opportunities given the FTSE 100’s new all-time high, achieved earlier this year, was driven by a small number of stocks – energy and miners – which have benefited from rising energy prices.

Fund statistics, however, show that investors have not yet been persuaded. Figures from the Investment Association (IA) reveal that March and April were two bumper months for fund sales, with inflows of £3.8 billion. But UK equity funds saw £2 billion withdrawn across the three sectors – UK all companies, UK equity income, and UK smaller companies.

Overall, UK funds have been out in the cold since the Brexit vote, which created a huge amount of uncertainty.

In terms of investment trusts, three UK equity mandates, abrdn Smaller Companies Income (LSE:ASCI), Invesco Select UK Equity (LSE:IVPU) and Shires Income (LSE:SHRS), are among the biggest discount increases over the past week.

Investment trustSectorDiscount/premium change over past week* (%)Current discount (%)
Livermore Investments (LSE:LIV)Flexible Investment-7.99-50.42
Digital 9 Infrastructure  (LSE:DGI9)Infrastructure-6.70-53.14
abrdn Smaller Companies Income (LSE:ASCI)UK Smaller Companies-5.89-14.67
Invesco Select UK Equity (LSE:IVPU)UK Equity Income-5.31-16.28
Golden Prospect Precious Metal (LSE:GPM)Commodities & Natural Resources-5.18-24.15
Barings Emerging EMEA Opportunities (LSE:BEMO)Global Emerging Markets-4.16-23.60
Life Science REIT (LSE:LABS)Property - UK Commercial-3.82-32.10
M&G Credit Income Investment (LSE:MGCI)Debt - Loans & Bonds-3.71-8.68
Shires Income (LSE:SHRS)UK Equity Income-3.65-6.07
Downing Renewables & Infrastructure (LSE:DORE)Renewable Energy Infrastructure-3.53-19.80

Source: Morningstar. *Data from close of trading 6 July 2023 to close of trading 13 July 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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