Investment trusts have traded at double-digit discounts for an “unprecedented period”, presenting investors with opportunities, research from the Association of Investment Companies (AIC) has revealed.

The average investment trust, excluding 3i, currently trades at a discount of 14 per cent, with the average discount being greater than 10 per cent since September 2022, peaking at 19 per cent in October 2023.

This means that investment trusts have been averaging double-digit discounts for 29 consecutive months, longer than any other period since 1996.

The second-longest period was between August 1998 and October 2000 (27 months), while the financial crisis saw double-digit discounts persist between September 2008 and September 2010 (25 months).

The AIC noted that previous periods of double-digit discounts have ended with those discounts narrowing, which contributed to strong returns.

Additional research from the AIC found that the average investment trust, excluding 3i, returned 86.5 per cent in the five-year periods that began with double-digit discounts, compared to the 53.8 per cent return delivered over five years when investing at discounts narrower than 10 per cent.

This is equivalent to an annualised return of 13.3 per cent over five years when investing at double-digit discounts, compared to 9 per cent when investing at narrower discounts.

“Discounts can spell opportunity when it comes to investment trusts,” said AIC research director, Nick Britton.

“Our research shows that investing at double-digit discounts is generally good for your pocket, and that message has clearly got through to activist investors like Saba.

“The current period of double-digit discounts has been long, but it can’t last forever. Previous periods like this have ended with some combination of market recovery and corporate activity – and there’s no reason to think this one will be any different.

“It can be hard to invest when sentiment is downbeat, but history shows this is usually the best time.”

Research in Finance analysis of 212 experienced investors showed that 32 per cent planned to invest more in investment trusts over the next six months, while 60 per cent expected to keep their investment steady and 8 per cent planned to invest less.

Of the 32 per cent who expected to invest more, 50 per cent said it was because of attractive discounts or discounts widening.

This was the fourth most commonly cited reason to buy more after the strong performance of certain trusts (59 per cent), good/reliable dividends (51 per cent), and having a more favourable view of trusts generally (51 per cent).

The opportunity to buy at a discount was seen as a benefit of investment trusts over open-ended funds by 62 per cent of respondents, with the only benefit more widely recognised being fund managers not being forced to sell assets to meet redemptions (64 per cent).

“Discounts remain a significant factor in what makes investment trusts appealing to private investors, and that’s been the case ever since we launched this study nearly 10 years ago,” commented Research in Finance associate director, Abbie Hines-Lloyd.

“Private investors recognise that discounts can offer value and opportunity, making it easy to assess when might be a good time to invest or grow a position.

“Our research shows that investors at an earlier stage in their investment journey are particularly open to utilising the opportunity discounts provide.

“However, it is important to note that stubborn discounts can be problematic for those who have already weathered several market cycles, and who may be more focused on cashing in their investment than seeking new buying opportunities.”

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