Disclaimer
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.
One of the attractions of investment trusts is the potential to pick up discounted bargains, which can supercharge NAV returns if correctly anticipated. As we have remarked before, closed-ended funds have historically delivered superior NAV returns. But buying shares on a substantial discount can significantly enhance those NAV returns should the discount narrow on a sustained basis.
The reasons for investment companies' long-run NAV outperformance of equivalent open-ended funds lie within their structural advantages, as wrote about in detail last year. Firstly, they have the ability to make the best use of less liquid assets and managers can manage those assets without having to worry about inflows and outflows. Secondly, they can employ gearing, which should be accretive to returns over the long run even if timing isn’t attempted, assuming equity markets continue to rise over the course of each cycle.
Here we turn our attention to those trusts that are sitting on exceptional discounts at this point in time, combined with the potential for strong NAV growth.
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