Discount Delver: the 10 cheapest trusts on 30 September 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.

As part of a new 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. 

Investment trust discounts have been widening across the board of late. Figures from analyst Winterflood show the average discount is 16.5%. This compares to an average discount of 5.1% since the start of 2020. The investment companies sector is now down 21.3% year-to-date compared with a fall of 8% for the FTSE All-Share Index. There’s no shortage of bad news: inflation remains at its highest level for decades, interest rates are rising and economic growth is sluggish, potentially leading to a recession.

Over the past week, property trusts feature heavily among the biggest discount movers. Rising interest rates and fears of a recession have negatively impacted investment sentiment towards property-focused investments. Five of the 10 biggest discount rises over the past week are trusts that invest in property: Warehouse REIT (LSE:WHR), Urban Logistics REIT (LSE:SHED), Urban Logistics REIT (LSE:SHED), Impact Healthcare REIT (LSE:IHR) and Home REIT (LSE:HOME).

The remaining five trusts invest in infrastructure, with four specialising in renewable energy infrastructure. Expectations for much higher interest rates following the inflationary effects of the government tax cuts in last week’s mini-budget caused gilt yields to notably rise. Gilt yields impact how infrastructure funds value their assets, the so-called discount rate. When yields rise, the discount rate also increases, which reduces the valuations of a trust’s assets, causing its net asset value (NAV) to fall.  

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

Source: Morningstar. *Data from close of trading 22 September 2022 to close of trading 29 September 2022. Past performance is not a guide to future performance.