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.
Spiking interest rates have caused chaos in global markets this year. The sheer speed of the increase as well as the rock-bottom starting point have been unhelpful, to say the least. However, there is one small silver lining for those who were astute or lucky enough to lock in debt before lift-off. In fact, many investment trusts took advantage of the previously benign lending conditions to issue low-cost long-term debt. Not only does this put them in a strong position to take advantage when the recovery comes, but in the short term it has been accretive to NAV because as the fair value of this debt has fallen, there has been a positive impact on net asset values. We don’t think investors should be seeking excess returns by anticipating further fair value changes – although there may be more gains to come – but this does highlight that when assessing an investment trust’s gearing, there is more to it than just the traditional gearing ratio.
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