Persistent discounts in the investment trust sector – where trust shares trade at below the net asset value per share value of their portfolios – have prompted a degree of consolidation. In some cases trusts have been wound up, some have merged and others became the targets of hostile takeover bids.
Wide discounts that persist aren’t good for shareholders: they become a distraction from the underlying investment strategy and capital gets expended buying back shares when it could be put to work in the underlying fund strategy.
Where the discount looks like it could be temporary and close naturally, however, it can be a value opportunity. Re-running our value-momentum investment trust screen, we note a few trusts that could fall into this category.