Investors are poised to snap up investment trusts at discounts almost as wide as at any point during the financial crisis, a recent survey has revealed.
Clients at interactive investor said they were more interested in buying investment trusts now than they were a week ago. A survey run by the investment platform between 23 March and 25 March showed 26% of clients said they were buying or planning to buy investment trusts, up from 20% in its survey from 11 March and 13 March.
The research comes a day after data showed the average discount in the investment company sector was trading around lows seen during the financial crisis.
Data from research house Winterflood Investment Trusts showed the average discount in the investment companies sector, excluding 3i Group, reached 20% on Tuesday (23 March), almost as wide as the 23% seen in late 2008. After a bounce in markets on Wednesday, the sector closed the day at a 15.1% discount - narrower, but still wider than seen since early 2009.
"The investment companies sector saw a notable rebound [on Wednesday],with the FTSE Equity Investment Instruments index up 9.1% compared with a rise of 8.9% for the FTSE All-Share index," Winterflood's head of research Simon Elliott said in a note to clients.
"This was partly a result of a snapback in the sector average discount, which narrowed from 20% to 15% in one day. However, this still places the sector at comparable levels last seen in the global financial crisis."
Lee Wild, head of equity strategy at interactive investor, said the renewed focus on investment trusts was "noteworthy", but cautioned that "there is always the chance that discounts widen further".
Head of fund research at the platform Dzmitry Lipski said investment companies were "the ultimate barometer of sentiment. "With our daily lives both on hold and under enormous uncertainty, rarely have markets mirrored so closely this grim social, emotional and economic reality," he added.
Lipski noted the average trust discount had widened dramatically from "what was probably an all-time low" 1.3% at the end of 2019, and just 5.5% at the end of February 2020.
UK commercial property trusts post steep declines
He noted UK commercial property trusts have, as they did during the financial crisis, "posted especially steep declines", with the current average discount in the sector standing at 32.5% as at 23 March.
Sentiment towards the sector has taken a hit recently, as valuers struggle to accurately predict how much physical property assets are worth amid a backdrop of low transaction volumes. This led to almost all the open-ended funds in the Investment Association UK Direct Property sector gating last week.
Annabel Brodie-Smith, communications director of the Association of Investment Companies, explained open-ended funds value their portfolio daily, with investors trading at net asset value (NAV). Therefore, she added, "it is not surprising that the impact of coronavirus on the economy and markets makes these daily valuation estimates very difficult to deliver".
"Investment companies value their properties either quarterly or twice a year, have more time to value their properties and can look at various valuation methods," she added.
"They also have independent boards of directors who will carefully consider appropriate valuation methods and the impact of market conditions. Investment companies should therefore be able to report their NAVs in the normal way even during stressed markets."
Richard Williams, property analysts at research firm QuotedData, noted that valuers would "continue to use any transactional evidence they have got and apply what they believe to be a realistic valuation based on sentiment and evidence, and insert a material uncertainty clause".
"There is obvious downside risk but sentiment is difficult to price. The market is moving very quickly and the speed of change this week on market sentiment has been huge," Williams said.
"There are not likely to be many transactions in the current market and therefore little evidence to go on. Therefore there is likely to be little movement in valuations until there is transactional evidence of prices falling."