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.
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Digital 9 Infrastructure (LSE:DGI9) suffered a severe sell-off yesterday (29 September 2023), with its share price falling nearly 40%. The plunge was in response to its 6p dividend target being scrapped for its 2023 financial year, as well as its second-quarter dividend not being declared.
The investment trust, which focuses on companies involved in the infrastructure of the internet, saw its share price move from 55p to 33p. Its discount climbed 23 percentage points to end trading yesterday at -67%.
The scrapping of the dividend target was particularly punished given that its board said in mid-July that the policy would remain in place.
The dividend suspension comes amid a higher interest rate environment, which has stretched balance sheets due to higher borrowing costs.
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Phil Jordan, chair of Digital 9 Infrastructure, said: “While cognisant of the dividend target set out at IPO, the high interest rate environment and therefore the critical importance of prioritising liquidity and sustainable balance sheet management have compelled the board to not declare the Q2 2023 dividend and withdraw the dividend target for the year.
“In light of this, the board will be commencing a formal consultation with shareholders. We look forward to speaking with shareholders to understand their views and help the board to determine the optimal dividend policy and future direction of the company, acknowledging the diverging views regarding the company's capital allocation policy.”
Elsewhere, property investment trusts are dominate in the biggest discount moves over the past week. The asset class is deeply out of favour due to the higher interest rate backdrop, which has increased the “risk-free” returns on cash and boosted bond yields.
Seven property investment companies feature in the top 10 table: Regional REIT (LSE:RGL), Supermarket Income REIT (LSE:SUPR), Tritax Big Box (LSE:BBOX), Urban Logistics REIT (LSE:SHED), Triple Point Social Housing REIT (LSE:SOHO), abrdn European Logistics Income (LSE:ASLI) and LXI REIT (LSE:LXI).
|Investment trust||Sector||Current discount (%)||Discount/premium change over past week* (%)|
|Digital 9 Infrastructure (LSE:DGI9)||Infrastructure||-67.04||-23.20|
|Regional REIT (LSE:RGL)||Property - UK Commercial||-64.44||-6.60|
|Supermarket Income REIT (LSE:SUPR)||Property - UK Commercial||-24.40||-6.30|
|Geiger Counter (LSE:GCL)||Commodities & Natural Resources||-23.32||-5.50|
|abrdn European Logistics Income (LSE:ASLI)||Property - Europe||-35.25||-4.90|
|Tritax Big Box (LSE:BBOX)||Property - UK Logistics||-30.11||-4.80|
|Urban Logistics REIT (LSE:SHED)||Property - UK Logistics||-34.03||-4.70|
|Triple Point Social Housing REIT (LSE:SOHO)||Property - UK Residential||-62.12||-4.70|
|LXI REIT (LSE:LXI)||Property - UK Commercial||-26.24||-4.70|
|Syncona (LSE:SYNC)||Biotechnology & Healthcare||-42.47||-4.60|
Source: Morningstar. *Data from close of trading 21 September 2023 to close of trading 28 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.