Interactive Investor

Discount Delver: the 10 cheapest trusts on 6 January 2023

6th January 2023 10:57

Kyle Caldwell from interactive investor

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.

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.

At the start of a new year, there's no shortage of headwinds threatening to make 2023 another tough year for investors to make money.

However, for those who are prepared to be patient and take a long-term view, investing in shares or sectors of the market that are ‘cheap’ and undervalued potentially offers great rewards.

Of course, there’s the risk of catching the proverbial falling knife. In the case of investment trusts, there will be a reason why the shares are cheap – it could be due to poor short-term performance, or poor sentiment towards the shares or regions the trust invests in. Ultimately, investors need to make their own judgement call regarding whether the discount is a bargain.   

Over the past week, the biggest discount mover is RIT Capital Partners (LSE:RCP). Its discount is now 18.9%, which is down to its short-term performance. Over the past year, the trust has lost 26.3% in share price terms. In contrast, its three “wealth preservation” trust rivals have protected capital much better, with both Personal Assets (LSE:PNL) and Capital Gearing (LSE:CGT) posting small losses of 2.8% and 2.9%. Ruffer Investment Company (LSE:RICA) fared better, making a positive return of 7.6%, owing to tactical defensive positions paying off. To find out the full details, watch our recent video interview with Ruffer manager Duncan MacInnes.

RIT Capital Partners has a notably higher amount in equities compared to its rivals – at around two-thirds of the portfolio. Some of this exposure is to unlisted companies, whose valuations are set behind closed doors.  

While it is not a surprise to see RIT Capital Partners have a bumpier ride when stock markets are out of form, such a big loss will be hard to stomach given that it aims to deliver “reasonable protection in down markets”.

Investec, the investment trust analyst, last month downgraded RIT Capital Partners from a buy to a hold. It noted that the risk profile of the trust has been radically transformed following a strategic allocation towards venture capital and strong organic growth of these investments in recent years”.

It said: “Private investments are now 45% of NAV vs a 10-year average of 25.5% and there is a significant tilt towards what we regard as higher-risk venture capital; the disclosed venture capital fund exposure alone is 18.5% vs. 1% just seven years ago.

While this portfolio delivered some exceptional returns in 2021, there has since been a disconnect between private and public valuations. A core objective of RIT is capital preservation, but we fear this may prove illusory as underlying valuations normalise.”

This week, RIT Capital Partners was given a “sell” rating in The Daily Telegraph’s Questor column. The day the article was published (5 January), saw RIT Capital Partners’ share price fall by 9%, causing its discount to widen.   

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

Investment trustSectorDiscount/premium change over past week* (%)Current discount (%)
RIT Capital Partners (LSE:RCP)Flexible Investment-5.91-18.91
abrdn Private Equity Opportunities (LSE:APEO)Private Equity-4.00-42.31
Lowland (LSE:LWI)UK Equity Income-3.80-10.10
Middlefield Canadian Income (LSE:MCT)North America-3.54-11.50
Aurora (LSE:ARR)UK All Companies-3.23-7.68
Fidelity Emerging Markets (LSE:FEML)Global Emerging Markets-3.04-14.62
Artemis Alpha Trust (LSE:ATS)UK All Companies-3.01-11.32
Edinburgh Worldwide (LSE:EWI)Global Smaller Companies-2.94-11.28
Cordiant Digital Infrastructure (LSE:CORD)Infrastructure-2.66-23.06
TR Property (LSE:TRY)Property Securities-2.64-10.32

Source: Morningstar. *Data from close of trading 29 December 2022 to close of trading 5 January 2022. 

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.