Head to head

Dire Straits or Money for Nothing?

With the sector having seen discounts narrow like never before – our analysts debate whether a premium is a price worth paying…
Kepler Trust Intelligence
Last update 24 February 2021

This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.

In the context of history, discounts across the investment trust sector are relatively narrow. An increasing number of trusts now trade at a premium to NAV. At the start of February, there were 77 trusts from a total universe of c. 300 trading at a premium, of which 33 were on a premium of greater than 5%. Is this a case of irrational exuberance, or is this a long overdue reflection of the long term advantages that investment trusts have in being able to deliver outperformance?

According to JPM Cazenove, during 2020 average investment company discounts widened slightly by between 0.2 and 1% points. However, the chart below shows that this is relatively narrow in the context of the past five years, and even longer. Within the average, there are clearly plenty of outliers. However, an increasing number of trusts now trade at a premium to NAV. Overall we calculate that 77 trusts from a total universe of c. 300 trade at a premium, of which 33 trade greater than 5% premium.

Our analysts debate whether investors should be happy to pay premiums to NAV.

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