Discount Delver: the 10 cheapest trusts on 4 November 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, Princess Private Equity (LSE:PEY) has seen its discount increase the most, from 31.1% to 45.3%. The firm surprised the market this week by announcing a dividend suspension, due to its currency hedge turning sour. 

Numis, the analyst, points out that having a currency hedge in place is a “unique approach” that does not extend to other private equity investment trusts. Princess Private Equity’s currency hedge got into trouble due to the strength of the US dollar versus the euro.  As a result, it needs to raise cash to settle the currency hedge, which has led to the dividend suspension.

Numis said: “The suspension of the dividend will be hugely disappointing for investors and we expect it to lead many investors to fundamentally question the rationale for holding the fund.”

It added: “This news will be particularly disappointing in light of the manager recently highlighting its robust balance sheet.”

Two other private equity trusts feature in this week’s table: Literacy Capital (LSE:BOOK) and HgCapital Trust (LSE:HGT). Private equity trusts have been out of favour this year, due to the volatile market backdrop. Such trusts invest in unquoted stocks, which are valued behind closed doors and whose valuation often lags that of public markets.

Private equity trusts tend to back cash-generative, profitable and more mature unlisted businesses. Whereas ‘growth capital’ trusts invest in earlier stage companies, including Seraphim Space Investment Trust (LSE:SSIT), which invests in space tech businesses. It is trading on a discount of 52.5%, the highest in this week’s top 10 table.

The trust defines the sort of companies it will hold as those “which rely on space-based connectivity or precision, navigation and timing signals, or whose technology or services are already addressing, originally derived from, or of potential benefit to the space sector”.

Since IPO, the trust is down 54.6%. Its shares at the time of writing trade at 47.8p, a record low.

Another theme this week is the inclusion of three infrastructure trusts: Cordiant Digital Infrastructure (LSE:CORD), Ecofin Global Utilities & Infrastructure (LSE:EGL) and Digital 9 Infrastructure (LSE:DGI9).  

Infrastructure trusts are seeing their discounts widen due to UK government bond (gilt) yields being at their highest levels in a number of years. This impacts how investors value the expected income on offer.

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

Source: Morningstar. *Data from close of trading 27 October 2022 to close of trading 3 November 2022. Past performance is not a guide to future performance.