Discount Delver: the 10 cheapest trusts on 20 December 2024

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.   

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In our weekly series, interactive investor highlights the 10 biggest investment trust discount moves over the past week.

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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As has been the case throughout 2024, investment trusts offering high yields in the alternative asset space are trading on big discounts. The data was run a day earlier than usual, and is from 11 December to 18 December.

Four trusts from the renewable energy infrastructure sector make this week’s table: Ecofin US Renewables Infrastructure Ord (LSE:RNEW), Foresight Solar Ord (LSE:FSFL), Greencoat Renewables (LSE:GRP) and NextEnergy Solar Ord (LSE:NESF).

Since interest rates started rising in late 2021, investors have shunned the renewable energy infrastructure sector. Rate rises have caused a re-pricing of valuations, which has hurt share prices. As interest rates rise, so do bond yields. As a result, income seekers have more options and can take less risk, as the safest types of bonds, UK and US government bonds, offer yields of around 4% compared to virtually nothing when interest rates were at rock-bottom levels. 

While the yields for renewable energy infrastructure investment trusts are higher (with the sector average yield at 9.4%), investors have been focusing on lower-risk areas where yields have risen. For example, cash-like money market funds are offering yields of around 5%.

Another headwind has been that higher interest rates also increase the cost of debt, which is a key tool for renewable infrastructure trusts to purchase new assets.

Source: Morningstar. *Data from close of trading 11 December 2024 to close of trading 18 December 2024.