Buying the discount

Investment trusts spent over £1bn on discount control in the first half of 2022…writes David Kimberley

Depending on how you view the world, discounts are likely to be one of the best things about the investment trust universe or an infuriating idiosyncrasy that you’d rather didn’t exist.

Proponents of the former position are likely to argue that discounts create opportunities to find bargains, with the potential for an additional boost to capital if you make the right call. On the other hand, you may have investors who are fearful of seeing their portfolio’s value dropping far below its net asset value (NAV) or who have holdings in a trust with a discount that just won’t tighten.

For investors that don’t like discounts, the good news is that there are plenty of trusts that maintain active buy back policies to manage them. And as Dave Baxter at Investors Chronicle reported at the end of last month, closed-ended funds spent more on share buy backs in the first half of 2022 than they have, over the equivalent period, since 2017.

Share buy backs during that time totalled £1.2bn, although that was on the heels of a very productive two-year period in which funds across the sector raised approximately £17bn through new share issuance.

For investors that are looking for a fund that maintains an active discount management policy, some of the trusts that have been active in the first half of the year may be appealing. Momentum Multi-Asset Value (MAVT) maintains a rigorous discount control mechanism that has enabled it to both issue and buy back shares where it sees fit, keeping its share price very close to NAV as a result.

Other investors may accept the discount widening to a certain level but not want it to widen beyond that point. JPMorgan Asia Growth & Income (JAGI) is an example here. The board has approved a buy back mechanism that means the trust will try, as far as possible, to not allow its shares to trade at a discount that’s greater than 8% to 10%.

Of course, you may be someone that doesn’t care about discounts or even sees them as a buy opportunity. If that’s the case then I can only recommend perusing our recent strategy article on private equity. There are no guarantees that it’s the case but there is reason to believe that the widening of discounts in the listed private equity space may present opportunities to investors.

_Disclaimer

_{This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.}