Clamour for ‘zero discount’ policy to give trusts RDR boost

“This idea is appealing for mainstream, global growth and UK funds. If you are a smaller or more cyclical fund everyone could want to buy and sell at the same time, and you don’t have the liquidity.”

However, advisers who buy investment trusts have said the existence of share price discounts and premiums creates welcome opportunities to generate extra gains from trust investing.

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Philip Milton, managing director of Philip J Milton & Company, said he saw discount control mechanisms as counterproductive.

“I don’t really agree with rigid discount control mechanisms,” he said.

“They become a snake-eating-tail exercise and I much prefer to see more proactive boards and brokers to create a better market in the shares.”

“I’d like to see ‘treasury’, and not immediate cancellation, of re-acquired shares used more often to diminish spreads and to facilitate sensible buying and selling so that holders know they can trade in sensible quantities.”

Viable candidates: who could adopt a zero discount policy?

Foreign and Colonial

Size: £1.9bn

Manager: Jeremy Tigue

Sector: Global Growth

Founded: 1868

The trust has a strict discount control mechanism of no more than 10 per cent. In 2011, manager Jeremy Tigue said the trust’s buyback policy had been successful since its introduction in November 2005.


Size: £818m

Manager: Gerald Smith

Sector: Global Growth

Founded: 1929

Monks, which is run by Baillie Gifford, does not operate a formal discount control mechanism, but has bought back shares in recent months as its discount widened out to the mid-teens.

Perpetual Income and Growth

Size: £666.5m

Manager: Mark Barnett

Sector: UK Growth & Income

Founded: 1996

At a 1.6 per cent premium, the trust trades close to its net asset value and invests a lot in blue chip companies with high liquidity. The trust’s board said that it closely monitors the discounts of other trusts in the sector.

AIC view: Ian Sayers

Ian Sayers, chief executive of the AIC, said he was cautiously in favour of at par discount control. “I agree with the sentiment,” he said. “Absolute discount is an issue, volatility is unattractive, and this does give boards more options.

“A lot of trusts have moved to premiums and can issue shares to meet demand.

“They need to look at what they are going to do if sentiment turns.”

The four trusts with a zero discount policies

Personal Assets

Size: £564.6m

Manager: Sebastian Lyon

Current disc/premium: 0.8%

Founded: 1983

Mid Wynd International

Size: £63.4m

Manager: Michael MacPhee

Current disc/premium: -2.7%

Founded: 1981

Troy Income and Growth

Size: £131.8m

Manager: Sebastian Lyon

Current disc/premium: 0.8%

Founded: 1988

UK Select

Size: £31.4

Manager: Simon Brazier

Current disc/premium: -1.5%

Founded: 1953