Investment trusts are fascinating vehicles. While there are different versions of these investment companies in other countries, London’s collection of investment trusts is the largest and most diverse in the world. In the most basic sense, investment trusts are companies that own a portfolio of investments.
They are so-called closed-ended vehicles, meaning the number of shares in issue is fixed. Unlike open-ended investment funds, which issue and redeem shares daily to match inflows and outflows, the share price of an investment trust is determined by market sentiment.
This gives rise to an interesting quirk of investment trusts: they trade at a discount or premium to net asset value (NAV), the value of the underlying portfolio. An investment trust’s NAV is calculated by adding together all of the assets owned by the investment company and deducting any liabilities. The figure is then divided by the number of shares in issue to give a NAV-per-share number.
If there are more sellers than buyers for an investment trust, it’s common for the share price to dip below the NAV per share. That’s just what’s been happening in the UK over the past year.
According to analysts at Stifel, a wealth management and investment banking group, the average discount to NAV across all investment trusts listed in London widened to 16% in the first quarter, a level not seen since the 2008 global financial crisis (GFC).
Similar discounts were recorded in September 2022 during the mini-Budget crisis and at
