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 and those that are not available on the interactive investor platform.
Investment trusts generating income outside the two mainstream asset classes, shares and bonds, continue to see their discounts widen in response to interest rate rises.
Rate rises have triggered a re-pricing of risk assets due to the fact that investors can, for the first time in more than a decade, obtain a decent level of income on low-risk assets such as cash and bonds.
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With yields of 4% and 5% available on cash and relatively low-risk bonds, there’s less appeal in trying to obtain bigger returns for a higher amount of risk.
This is increasing discounts at so-called alternatives trusts: Harmony Energy Income, now on a 15% discount, TR Property (12%) discount, Alternative Income Reit (25% discount) and BBGI Global Infrastructure (13% discount).
However, HydrogenOne Capital Growth recorded the biggest discount move. Its discount rose from 36% to 43%, and is now well ahead of the average 26% discount over the past 12 months.
The trust invests in companies involved in hydrogen power, both public and private. However, investors are sceptical about the unproven sector and are selling the trust’s shares as interest rate rise.
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|Name||Sector||Discount/premium change over past week* (%)||Current discount (%)|
|HydrogenOne Capital Growth||Renewable Energy Infrastructure||-6.90||-43.00|
|Rights & Issues Investment Trust||UK Smaller Companies||-6.54||-18.57|
|Harmony Energy Income Trust||Renewable Energy Infrastructure||-5.19||-14.97|
|Foresight Sustainable Forestry||Farmland & Forestry||-4.70||-11.15|
|TR Property||Property Securities||-4.60||-12.11|
|TwentyFour Income||Debt - Structured Finance||-4.58||-6.38|
|Alternative Income REIT||Property - UK Commercial||-4.53||-26.32|
|BBGI Global Infrastructure||Infrastructure||-4.49||-13.04|
|JPMorgan Global Core Real Assets||Flexible Investment||-4.24||-20.05|
Source: Morningstar. *Data from close of trading 29 June 2023 to close of trading 6 July 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.