Investment trust discounts: four stand out from the crowd

The investment trust structure offers investors the opportunity to buy a basket of investments for less than the sum of their parts.

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As more seasoned investors will be familiar with, when an investment trust’s share price trades below the value of its underlying investments (the net asset value or NAV), it trades on a discount.

Under the opposite scenario, an investment trust trades on a premium, meaning that investors who buy at that point are paying more than the value of the investments held.

However, it’s important to be aware that over the long term it’s the performance of those underlying investments that has the biggest influence on the overall total shareholder returns. Put simply, if the trust doesn’t perform well, it’s likely to consistently have a high discount due to a lack of demand for the shares.

It’s important to remember that there will be a reason why a trust is trading on a discount. It could be related to poor investor sentiment towards the region it invests in, the trust’s investment style being out of favour, or lacklustre short- or long-term performance. Indeed, it could be all those reasons.

As with any investment trading on a cheap valuation, it’s important to avoid being seduced solely by the discount. Instead, consider the prospects for the investment trust going forwards.

Also consider whether the way in which the manager invests is sufficiently different from the wider market. If that’s not the case, there’s less potential for outperformance and not enough of an edge versus the competition – a low-cost index fund or exchange-traded fund (ETF).

Discounts can work in investors’ favour, but it’s important to think long term and be patient. If you buy at the right time, resulting in a high discount falling to a low one, or even moving to a premium, the share price return will be boosted.

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Below, we’ve identified four investment trustsfocused on developed markets that are trading on attractive discounts and have good prospects.

There are much bigger discounts available elsewhere, such as among renewable energy infrastructure trusts. However, this is a higher-risk area and despite interest rate falls, the sector hasn’t recovered its poise, with a government consultation proposing changes to subsidies proving to be an unexpected headwind.

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Some investors may view the wide discounts and high yields as an opportunity. The sector is trading on a discount of -36.4% and an average yield of 11.4%. However, others may be more inclined to wait until there are signs of a sustained recovery.  

However, in this article, the focus is on investment trusts investing in more mainstream areas.

Aberforth Smaller Companies

Our first two picks are from our home stock market. UK funds and investment trusts have been unloved for many years, with investors increasingly venturing overseas and, in particular, looking to tap into the strength of the US stock market, which has been boosted by the strong showing of its technology giants, the so-called Magnificent Seven.

However, the UK market eclipsed returns from across the pond in 2025, with various sectors performing well, including resource, defence and banking stocks.

Yet if you look under the bonnet, the biggest companies in the FTSE 100 index have been leading the rally. Such companies tend to make most of their money overseas.

Companies that are more domestically facing – medium- or smaller-sized ones – have lagged their larger rivals, so there’s potential for some performance catch-up. In addition, this area of the stock market is trading on cheaper valuations.

Aberforth Smaller Companies (LSE:ASL) is one investment trust that adopts a value approach in this area by seeking out companies trading on share prices below their true worth – their intrinsic value. Its six-strong management team focuses exclusively on investing in this area of the market.   

ASL is on a discount of 8.9% (as at 28 January), so it’s offering investors a cheaper way of owning a collection of companies that are already cheap, and which could translate into compelling returns over time.

Its discount is more attractive than value-focused peers Temple Bar (LSE:TMPL) and Fidelity Special Values (LSE:FSV), which are trading very close to the value of their underlying investments.

Lowland Investment Company

While Lowland (LSE:LWI) can invest across the whole of the UK market, it typically has half its portfolio in small and medium-sized companies. Fund managers James Henderson and Laura Foll have been at the helm since 1990 and 2016, and are highly regarded.

Its consistency in growing income can fall under the radar, as Lowland isn’t considered a “dividend hero” after holding its dividend in 2009. However, since then, the dividend has increased every year. Lowland’s current yield of 3.9% is a premium to the FTSE 100’s yield of around 3%.

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Trading on a discount of 7.3%, this trust offers investors a cheap entry ticket, allowing them to tap into a market-beating yield and gain a good chunk of exposure to domestic Britain.

Earlier this month, when the discount stood at 8%, Winterflood, the analyst, noted that this offered “value as one of the widest in the peer group”.

It also said: “There is scope for a re-rating if sentiment towards the UK equity market improves, potentially benefiting from a diversification of investment away from the US.”

JPMorgan Japanese

Another market enjoying a purple patch is Japan, but it is one where investors may fear they are joining the party too late.

However, there are a lot of reasons to be positive, including the economy exiting deflation, and corporate governance reforms bearing fruit, with companies becoming more shareholder friendly.

One investment trust to play this region is JPMorgan Japanese (LSE:JFJ), which has a growth and quality bias, and seeks out companies with high operating margins. The team is a large one, and they have boots on the ground owing to being based in Toyko, which I view as really important when investing in one region.

The trust is trading on a discount of 7.3%, so it offers a cheaper entry point into a developed market with plenty of tailwinds. 

European Smaller Companies Trust

The European Smaller Companies Trust (LSE:ESCT), one of the “Saba Seven” trusts targeted by the US activist investor a year ago,has since merged with European Assets Trust (in October). Prior to that, it introduced a performance-linked tender offer, a formal discount target and an enhanced dividend policy.

It also tendered a large proportion of its shares (which saw full take-up of 42.2%), in a move to keep Saba at bay.

While the activist investor didn’t succeed in its attempt to oust the board, its interventions led to positive change for shareholders.

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For investors, the current discount of -9.9% is eye-catching given the board’s formal discount target is a mid-single-digit discount, achieved by buying back its own shares.

Moreover, the valuations in the region and part of the market that it invests in may also attract investor interest.

The trust is managed Ollie Beckett, who has been a portfolio manager at Janus Henderson since 2006. He is supported by portfolio managers Rory Stokes and Julia Scheufler.

The team believe that, over the longer term, smaller companies will consistently outperform larger companies, as they are less efficiently priced.

The trust has delivered robust performance over the long term, driven by stronger performance during periods of market strength.