Many investment trusts which were previously trading at a premium have moved into discount territory in the lead up to the EU referendum.
David Smith, who took over as lead manager of the Henderson’s High Income trust in July, said Brexit fears have pushed down the price of premium vehicles and trusts already trading at a discount.
According to Morningstar data, investment company discounts reached an average of 5.8 per cent at the end of March, creeping back after falling to 6.2 per cent in February.
Annabel Brodie-Smith, communications director at the Association of Investment Companies, said there are a number of reasons for this.
“Clearly the market volatility and concern over the global economy have affected market sentiment and there’s caution ahead of the EU referendum vote in June.”
James Budden, director of marking and distribution at Baillie Gifford, agreed that discounts within the investment trust sector have widened out by a few percent this year, but disputed whether this was only caused by the threat of Brexit.
“There are many factors at play which have come together to bring about a ‘risk off’ environment,” he said, pointing to the “endless list” of issues which can influence discounts, inlcuding the perceived slowdown in China, the US election, and European fiscal problems.
“This provides a good opportunity for investment in quality assets like global growth trusts at a cheaper price.” James Budden“You can find plenty of uncertainty and resulting volatility so it is no real surprise that investors have been voting with their feet.”
Mr Budden said widening discounts in the sector also reflect a “general unwillingness” among investors to put their money in the market at the moment.
“However for those who can afford to look long-term rather than short-term this provides a good opportunity for investment in quality assets like global growth trusts at a cheaper price.”
Adviser view
Ben Willis, head of research at Bristol-based Whitechurch Financial Consultants, echoed Mr Budden’s points, suggesting widening discounts are not necessarily down to Brexit uncertainty.
“These fears have been abating over the last month or so but were significantly weighing on investors mind in January and February, which led to marked price falls in risk assets.”
Mr Willis said one of the attractions of investment trusts is the discount mechanism, describing the ability to purchase an asset class below its net asset value as enticing.
“We have seen plenty of trusts trading at premiums over recent years, and so it’s worth looking at any of these trusts that have moved to a slight discount.”
katherine.denham@ft.com
