Market woes send large investment trusts to rare discounts

Market woes send large investment trusts to rare discounts

Recent market turbulence caused the valuations of some of the most widely-owned investment trusts to move to rare discounts to net asset value (NAV).

Many of the largest and best performing trusts on the market rarely trade at a meaningful, or any, discount to NAV because they are constantly being bought by advisers and private investors.

But Jim Harrison, investment analyst at advice firm Master Adviser, said during last week's market turmoil the share prices of the trusts he is keen on became cheaper.

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He favours the City of London Investment Trust, F&C Investment Trust, Merchants Trust, Murray International Trust, Perpetual Income & Growth, Temple Bar Investment Trust, Claverhouse Investment Trust and Lowland Investment Company and said they all traded at either a discount or a smaller premium.

Mr Harrison said all these trusts had long-term track records of producing income, which mean this was "great news" for long-term investors with cash to deploy now.

He said: "For current investors it is a time to sit tight, wait for the stocks to rise again, and in the meantime collect your dividends, and actually take comfort from the fact that share prices are doing exactly what they have always done, and always will."

Mr Harrison said the recent waves of share price volatility was not significant in a historic context, with UK share prices “unjustly beaten up".

Luca Paolini, chief strategist at Pictet Asset Management said a prolonged bear market was unlikely, and added the economic and market fundamentals had improved since the start of the year.

He added: "Growth may be easing, but economic conditions remain healthy. What is more, stock market valuations are much lower now than they were in January - the forward price-earnings ratio for companies in the MSCI All Country World Equity index is 14 compared with almost 17 in January.

"Another positive is investor positioning. Our analysis shows investors have not been excessively bullish on equities in the lead-up to this sell-off – the opposite was true in January. This suggests the scope for a deeper sell-off is limited.

"Finally, our technical analysis suggests the S&P 500 Index is within 2-3 per cent of a level that has previously served as a floor."

Last week's sharp sell-off in equities began in the US has spread to Europe, with the FTSE 100 down 1.38 per cent to its lowest level for six months on Thursday (11 October) morning.

The US Federal Reserve has been tightening monetary policy by putting interest rates up for some time, but a combination of continued strong American economic data and higher oil prices, which also create inflation, meant the market had become more worried about the outlook for inflation, which has been expressed in the sell-off of US and other government bonds.

Such sentiments have been reinforced by the higher oil price and the ongoing trade dispute between the US and China, as both of those events would be expected to create more inflation, and necessitate more interest rate rises.