Discount Delver: the 10 cheapest trusts on 20 September 2024

Investment trusts, due to their closed-ended structure, offer investors the chance of picking up a potential bargain. Such an opportunity arises when a trust’s share price is lower than the underlying investments held by the trust (the net asset value, or NAV).   

However, a trust trading on a discount to NAV is not necessarily a buying opportunity. There’s likely a good reason why the trust is cheap, such as subdued short- or long-term performance, or poor investor sentiment towards how it invests.   

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In our weekly series, interactive investor highlights the 10 biggest investment trust discount moves over the past week. We publish this article every Friday, using data up to the close of trading the previous day.   

In total, nearly 400 investment trusts have been screened, with the data sourced from Morningstar. Venture Capital Trusts (VCTs) have been excluded. We also strip out trusts with less than £20 million in assets and those that are not available on the interactive investor platform. 

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Those investment trust strategies that have been hurt by interest rate rises over the past couple of years continue to remain out of favour, evidenced by the deep discounts on offer.

Over the past week, discounts widened for various trusts that faced this macro headwind, with Riverstone Credit Opportunities Income (LSE:RCOI) and Triple Point Energy Transition (LSE:TENT) seeing their discounts rise by over seven percentage points to -26.4% and -22.9%.

The latter is one of four trusts in this week’s table investing in renewable energy infrastructure alongside Ecofin US Renewables Infrastructure (LSE:RNEW), Greencoat Renewables (LSE:GRP) and HydrogenOne Capital Growth (LSE:HGEN).

Since interest rates started rising in late 2021, the renewable energy infrastructure sector has suffered. Rate rises caused a re-pricing of valuations, which has hurt share prices. As interest rates rise, so do bond yields. As a result, income seekers have more options and can take less risk, as the safest types of bonds, UK and US government bonds, offer yields of around 4% compared to virtually nothing when interest rates were at rock-bottom levels. 

The hope is that falling interest rates could act as a catalyst for a change in fortunes for the sector, as well as other investment trust strategies that have been out of favour.  

Interest rates were held at 5% this week, but current forecasts are for rates to fall to around 3.5% by the end of next year.

Source: Morningstar. *Data from close of trading 12 September 2024 to close of trading 19 September 2024.