Discount Delver: the 10 cheapest trusts on 2 December 2022

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

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.

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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.

Over the past week, there have been notable increases in discounts for two investment trusts on the back of sizeable share price moves.

Over the past week Home REIT (LSE:HOME) has continued to see its share price fall and its discount rise on the back of a short seller report published last Wednesday (23 November). Short seller Viceroy Research made allegations about the financial stability of the underlying assets of Home REIT, which invests in accommodation for homeless people across the UK. The report alleged that many of the tenants Home REIT works with “cannot afford rent, have not been paying rent, are in administration, are run by bad actors, or simply do not provide social housing services”. 

Home REIT described the report as “inaccurate and misleading”, and promised a “full and detailed response” in due course.

That response came this week (30 November), with Home REIT calling Viceroy Research’s allegations “baseless and misleading”. It addressed five key allegations made by the short seller, including financial stability.

It said: “Home REIT's rent is ultimately supported by central government funding and Local Authorities' statutory duty to house homeless people. There are no overdue arrears in relation to amounts billed to 31 August 2022, supporting the independent valuations of the company's portfolio carried out by Knight Frank.”

However, Home REIT’s rebuttal appears to have not calmed market nerves. Since its response, the share price has fallen 13.7%, from 59.9p to 51.7p. Its discount to net asset value (NAV) is now 56.5%. Two weeks ago, its discount was 35%.

On the whole, the investment trusts in our discount delver table either invest adventurously or specialise in property. 

Examples of adventurous trusts, which require investors to think long term and be patient, include Bellevue Healthcare (LSE:BBH), Mobius Investment Trust (LSE:MMIT) and Allianz Technology Trust (LSE:ATT). When investors are cautious – such is the case at the moment – such trusts see less investor demand.

Four of the 10 trusts in the table below invest in property. Rising interest rates and the likelihood of a prolonged recession have negatively impacted investment sentiment towards bricks and mortar, given that property investments are economically sensitive.

Discount Delver: the 10 biggest discount moves over the past week 

Source: Morningstar. *Data from close of trading 24 November 2022 to close of trading 1 December 2022.