ITs: Will discounts give way to mean reversion?

INVESTMENT TRUSTS

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With many investment trusts trading close to their NAVs or at premiums, Rob Morgan, analyst for Charles Stanley Direct, explores areas of value in the IT sector.

It is always a useful exercise to monitor investment trusts. For closed-ended funds, prices are dependent on supply and demand, meaning average discounts or premiums to trusts’ net asset values tend to rise and fall with market sentiment. When investors are nervous, they buy fewer equities and funds, and when they are confident, they buy more. So discounts can reveal investors’ enthusiasm for markets as a whole. Today, the investment outlook seems benign, and discounts reflect this. According to the AIC, the average investment trust traded on a discount of 3.4% at the end of last y...

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