Interactive Investor

Discount Delver: the 10 cheapest trusts on 29 July 2022

29th July 2022 11:13

Kyle Caldwell from interactive investor

As part of a new series, 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. This 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.

As part of a new weekly series, interactive investor will highlight the 10 biggest investment trust moves over the past week. We will 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. 

Over the past week the biggest rating change is Shires Income Ord (LSE:SHRS). The trust, managed by Abrdn’s Charles Luke and Iain Pyle, moved from a 3% premium to a 3.2% discount. The trust focuses on delivering a high income, and has a current dividend yield of 5.6%.

Two other trusts in our table below have moved from small premiums to small discounts over the last five trading days: GCP Infrastructure Investment Ord (LSE:GCP) and Ecofin US Renewables Infrastructure Ord (LSE:RNEW). Both offer investors high yields of 6.3% and 6%.

The highest discount (-55.4%) in our screen is Amedeo Air Four Plus (LSE:AA4). The aircraft leasing fund, however, is not for the faint-hearted.  The trust, which leases aircraft to Emirates, saw its share price suffer in response to the airline industry grinding to a halt during the pandemic. Over three and five years the trust has lost 53% and 53.1%.

However, over one year (up 59.4%) the share price has been staging a recovery on the back of a recovery in air travel.  

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

Investment trust Sector Discount/premium change over past week* (%) Current discount (%)
Shires Income (LSE:SHRS) UK Equity Income -6.16 -3.21
Invesco Bond Income Plus (LSE:BIPS) Debt - Loans & Bonds -4.03 -8.16
abrdn Latin American Income Fund (LSE:ALAI) Latin America -3.71 -10.20
Ecofin US Renewables Infrastructure (LSE:RNEW) Renewable Energy Infrastructure -3.18 -3.85
Princess Private Equity (LSE:PEY) Private Equity -3.08 -22.60
GCP Infrastructure Investment (LSE:GCP) Infrastructure -2.39 -2.50
Dunedin Enterprise (LSE:DNE) Private Equity -2.16 -19.88
Amedeo Air Four Plus (LSE:AA4) Leasing -2.12 -55.36
Rockwood Strategic (LSE:RKW) UK Smaller Companies -2.04 -10.40
RIT Capital Partners (LSE:RCP) Flexible Investment -1.78 -1.78

Source: Morningstar. *Data from close of trading 21 July 2022 to close of trading 28 July 2022. 

Of course, in the case of any investment trust discount, further homework is required. Among the things to consider are the prospects for the trust going forwards. Ultimately, investors will need to have a positive view of how the trust invests. 

In some cases, large discounts can be a more permanent feature for trusts due to a lack of investor appetite for shares and a lack of share buybacks by the board.

Trusts with a low profile, or those that invest in a specialist area of the market, can also persistently trade at discounts to NAV. Such trusts tend to fly under the radar of many investors. With demand low, these trusts tend to persistently trade on a discount. 

In general, investment trusts have a greater tendency to converge to their mean discount rather than the value of their underlying investments. Therefore, it is useful to consider the current discount versus history, and take a view over one, three and five years.

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.