Interactive Investor

Discount Delver: the 10 cheapest trusts on 23 June 2023

23rd June 2023 10:09

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.

A trend this week is that half of the 10 investment trusts in the table have, on average, traded close to par (the value of their underlying assets) or on a premium over the past year.

Gresham House Energy Storage (LSE:GRID) and BBGI Global Infrastructure (LSE:BBGI) have seen their premium ratings change into sizeable discounts. The former, which sits in the renewable energy infrastructure sector, has typically traded on a premium of 8.4% over the past year, but is now offering a discount of 10.8%. Meanwhile, BBGI Global Infrastructure, currently on a discount of 15.3%, has a 12-month average premium of 7.8%.

Meanwhile, the three trusts that have traded close to par over the past year, which are now on sizeable discounts, are: 3i Infrastructure (LSE:3IN), HICL Infrastructure (LSE:HICL), and Renewables Infrastructure Group (LSE:TRIG).

The widening of discounts for infrastructure-focused investment companies is due to rising interest rates, which has reduced the appeal of such strategies.

A couple of years ago, most trusts specialising in this asset class were trading on premiums, with investors attracted to the high yields on offer and the inflation-protected cashflows.

However, with interest rates having risen notably over the past 18 months and hitting 5% this week, there’s less incentive to take greater levels of risk to achieve a higher amount of income, with yields for infrastructure trusts typically around 6.5%. The same trend has also caused discounts to widen for other income-producing sectors, such as property and debt. 

The collapse in premiums for half the investment trusts in the table below serves as a reminder to investors that high premiums do not tend to be sustainable over the longer term. When conditions change – such as when investors become more cautious – premiums can fall and turn into a discount.

Investors who buy on a premium that narrows will see their holdings fall in value more than the underlying investments – the net asset value (NAV).

Investment trustSectorDiscount/premium change over past week* (%)Current discount (%)
Custodian Property Income REIT (LSE:CREI)Property - UK Commercial-8.60-15.51
BBGI Global Infrastructure (LSE:BBGI)Infrastructure-7.80-15.27
North Atlantic Smaller Companies (LSE:NAS)Global Smaller Companies-6.90-30.18
LXI REIT (LSE:LXI)Property - UK Commercial-6.70-27.22
Renewables Infrastructure Group (LSE:TRIG)Renewable Energy Infrastructure-6.60-17.95
HgCapital Trust (LSE:HGT)Private Equity-6.60-22.80
3i Infrastructure (LSE:3IN)Infrastructure-6.60-13.21
Gresham House Energy Storage (LSE:GRID)Renewable Energy Infrastructure-6.40-10.80
Pollen Street (LSE:POLN)Debt - Direct Lending-6.10-28.29
HICL Infrastructure (LSE:HICL)Infrastructure-6.10-21.63

Source: Morningstar. *Data from close of trading 15 June 2023 to close of trading 22 June 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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