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.
Three logistics investment trusts appeared on this week’s Discount Delver list (which we ran a day earlier this week), as rising bond yields put pressure on real estate and income trusts.
abrdn European Logistics Income had the second-biggest discount move, from 32.9% to 44.3%. Urban Logistics REIT moved from a 31.7% discount to a 36% discount, and Warehouse REIT moved from 34.7% to 39%.
- Bruce Stout: I’ve bought bargain bonds twice in 20 years, but won’t buy gilts now
- Benstead on Bonds: the bond crash has broken records – is it finally time to buy?
Other so-called real assets on the list included Life Science Reit (7 percentage point discount move); NextEnergy Solar (4.6 percentage point move); JPMorgan Global Core Real Assets (4.3 percentage point move); and Harmony Energy Income Trust (4.9 percentage point move).
Trusts that own physical assets to generate an income, such as solar power or battery storage facilities, are under pressure.
Now that investors can get 5% yields from the gilt market, or around 6.5% from investment grade bonds, it makes owning investment trusts that generate an income from physical assets less appealing. Gilt yields rose over the past week, with the 10-year bond moving from a 4.4% to a 4.6% yield.
Real-assets trusts can also be heavily reliant on debt to fund new asset purchases, which means that their costs are now higher due to interest rate rises.
Three other investment trusts made the list this week: Gulf Investment Fund, Golden Prospect Precious Metal and Eurocastle Investment. Gulf Investment Fund was recently sold by our columnist Ian Cowie amid concerns over contagion from the Israel-Hamas war.
|Group/Investment||Sector||Current discount (%)||Change in discount (%)*|
|Gulf Investment Fund||Global Emerging Markets||-13.51||-15.22|
|abrdn European Logistics Income||Property - Europe||-44.30||-11.38|
|Life Science REIT||Property - UK Commercial||-25.58||-7.18|
|Golden Prospect Precious Metal||Commodities & Natural Resources||-27.98||-5.52|
|Harmony Energy Income Trust||Renewable Energy Infrastructure||-34.63||-4.90|
|Eurocastle Investment||Debt - Loans & Bonds||-26.83||-4.88|
|NextEnergy Solar||Renewable Energy Infrastructure||-29.30||-4.67|
|Urban Logistics REIT||Property - UK Logistics||-36.17||-4.48|
|JPMorgan Global Core Real Assets||Flexible Investment||-29.49||-4.33|
|Warehouse REIT||Property - UK Logistics||-38.99||-4.24|
Source: Morningstar. *Data from close of trading 10 October 2023 to close of trading 17 October 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.