Widening discounts have plagued the investment trust industry for several years now as company shares continue to lose value versus their underlying assets. Multiple efforts were made to remedy this ongoing dilemma in 2024, including the highest level of share buybacks in the sector’s history. A total of £7.5bn of shares were repurchased throughout the year, as well as 10 mergers and seven liquidations also helping to narrow discounts.
Yet despite boards’ best efforts, discounts continued to widen even further in 2024. They stretched another 0.6 percentage points throughout the year to 13.5%, according to figures from QuotedData, with the market capitalisation of the sector also dropping from £178.9bn to £172.2bn.
Some sectors did a better job at reducing their discounts than others. The IT Debt – Structured Finance sector had the most significant transformation, shrinking its discount by 12.8 percentage points throughout the year from 30.4% to 17.6%, thanks to the likes of Blackstone Loan Financing announcing closures. The trust reduced its discount by 17.5% in 2024 and will have returned €337.9m (£281.2m) to shareholders by its completion at the end of June 2025.
Liquidations also helped sectors such as IT Environmental, whose discount fell from 19.6% to 10.2% after the proposed closures of Menhaden Resource Efficiency and Jupiter Green Investment. Once these wind downs are complete, only one trust – Impax Environmental Markets – will exist in the sector.
Some sectors dropped their discounts in the more traditional sense – by delivering strong returns. IT Growth Capital went from a discount of 45.8% to 35.4% as trusts such as Petershill, Seraphim Space and Chrysalis reported good returns, climbing 63.8%, 58.2% and 49.9%, respectively, throughout the year.
Ball and chain
Although 22 of the 45 investment trust sectors shrank their discounts in 2024, a handful of the biggest detractors continued to see their share prices fall further away from their net asset value. Alternative areas such as IT Infrastructure, IT Renewable Energy Infrastructure, IT Insurance and Reinsurance Strategies, and IT Property – UK Logistics weighed on the industry as a whole, according to James Carthew (pictured), head of investment company research at QuotedData.
“There’s been no shortage of effort from boards to lower those discounts. There has been a lot of corporate action, a lot of buybacks and a lot of wind-up decisions, so it will eventually snap back,” he says. “But it is being dragged down by the alternative trusts. They are distorting the picture and making it a lot worse than it actually is.”
This article originally appeared in the February issue of Portfolio Adviser magazine