DFMs eye investment trust opportunities amid wide discounts

'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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