DFMs eye investment trust opportunities amid wide discounts

investmentweek.co.uk:

'History suggests that discounts at these levels do not persist forever, and that periods of negative sentiment towards investment trusts can prove to be a good time to invest for the long term.'

The proportion of business written in investment trusts has risen from 9% in Q1 2020 to 14% in Q1 2023.

91% of investment trusts end H1 on discount as macroeconomic stresses bite

In a separate study, Research in Finance discovered that 24% of DFMs expect to write more investment trust business in the next six months, 65% believed they will write the same amount, while just 11% said they expect to write less.

Of the DFMs that expect greater use of investment trusts, the vast majority (95%) said the current discounts look attractive. Other reasons included taking advantage of volatility (38%), strong performance of certain trusts (30%), desire for gearing (27%), increasing their exposure to specialist areas (24%) and a more favourable view of trusts in general (24%).

Whereas those looking to use investment trusts less explained their intention to do so was due to liquidity concerns, alongside an intention to reduce exposure to illiquid asset classes and a greater use of passive funds.

In terms of sectors, infrastructure was the most sought after by DFMs, with 28% stating they plan to invest more, followed by private equity (21%), global (20%), UK (20%) and property (19%).

Nick Britton, research director at the Association of Investment Companies, said: «These findings suggest that some wealth managers are increasing their exposure to investment trusts because of — not despite — widening discounts. The infrastructure sector, for example, which trades on a 19% discount, is the top sector on wealth managers' shopping lists.

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