Interactive Investor

Discount Delver: the 10 cheapest trusts on 15 September 2023

15th September 2023 10:39

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.  

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.

Alternative approaches to generating income continue to remain out of favour, given that yields of around 5% are available on lower-risk cash and bonds.

The biggest mover over the past week is Regional REIT (LSE:RGL), which saw its discount widen by 11.9 percentage points to -54.7%.

Gresham House Energy Storage (LSE:GRID), which topped the table last week, continued to see its discount increase, by 7.5 percentage points to -23.9%. It takes second place in our table, followed by Foresight Sustainable Forestry (LSE:FSF) in third.

As well as alternatives coming under pressure, UK equities remain out in the cold. The latest statistics for funds shows that £1 billion was withdrawn from UK strategies in July.

In our latest On The Money podcast, Thomas Becket, chief investment office at Canaccord Genuity Wealth Management, explains why alternatives are out of favour.

Becket said: “If you go back a couple of years, the case for alternatives was really high because the hurdle rate for success was zero in fixed income…because the risk-free rate (what you could get on cash) was basically zero.

“The rates of return were awful, which was why people were driving down the road of private equity, private debt and alternatives.

“But as we sit here today, that whole risk curve has re-priced from zero to 5% as the risk-free rate. There’s short-term gilts where you can get a return of about 5%.”

Becket says that in this environment the investment case for alternatives has weakened. He says that with 5% on offer via gilts, investors would want to see alternatives offer yields of 8%-plus to be compensated for the additional risk. 

Investment trust Sector Current discount (%)Discount/premium change over past week* (%)
Regional REIT (LSE:RGL)Property - UK Commercial-54.69-11.90
Gresham House Energy Storage (LSE:GRID)Renewable Energy Infrastructure-23.90-7.50
Foresight Sustainable Forestry (LSE:FSF)Farmland & Forestry-20.74-6.50
Petershill Partners (LSE:PHLL)Growth Capital-54.20-5.50
Aseana Properties (LSE:ASPL)Property - Rest of World-70.27-4.10
Infrastructure India (LSE:IIP)Infrastructure-95.28-3.80
Schiehallion Fund (LSE:MNTN)Growth Capital-43.00-3.80
JPMorgan Global Core Real Assets (LSE:JARA)Flexible Investment-21.05-3.60
Shires Income (LSE:SHRS)UK Equity Income-13.30-3.60
BlackRock Income and Growth (LSE:BRIG)UK Equity Income-13.303.40

Source: Morningstar. *Data from close of trading 7 September 2023 to close of trading 14 September 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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