Page 13 - DIY Investor Magazine | Issue 37

13 By contrast, an investment trust on a premium tends to reflect Apr 2023 high demand as a result of elevated investor enthusiasm for a particular characteristic. Sometimes, however, discounts and premiums can arise simply because stock markets are not always totally efficient. DIY Investor Magazine · For investment trusts that release NAV data less frequently, a discount or premium may represent the market trying to estimate the change in the value of its assets since the NAV was last released. So, it is always important to try to understand why an investment trust share price has deviated from its NAV before making an investment decision. Nevertheless, a discount does effectively mean that investors have the potential opportunity to buy an asset for less than it is estimated to be worth. It’s bargain ‘THE POTENTIAL OPPORTUNITY TO BUY AN ASSET FOR LESS THAN IT IS ESTIMATED TO BE WORTH’ Any reference to sectors/countries/stocks/securities are for illustrative purposes only and not a recommendation to buy or sell any financial instrument/securities or adopt any investment strategy. hunting time! Using the example above, investors would have the opportunity to buy a portfolio estimated to be worth 100.6p per share for Occasionally, however, investment trusts can fall to very steep 90.5p per share. At a 10% discount, you get 1p in every 10p for discounts. 50% discounts or more are not unheard of, and this free. essentially means investors may be in “buy one, get one free” territory. WHY DO INVESTMENT TRUST SHARE PRICES MOVE AWAY FROM NAV? As the chart at the top of the article demonstrates, investment trusts tend to trade at a modest discount to NAV, but it is not unusual for trusts to trade at a premium in certain circumstances. WHICH SCHRODERS INVESTMENT TRUSTS ARE CURRENTLY AVAILABLE TO BUY AT A DISCOUNT? As the chart below illustrates, all Schroders investment trusts are currently available to buy at a share price below net asset value. Broadly speaking, if an investment trust is trading on a discount, Discounts range from -2.3% on the Schroders Income Growth Fund, through to -49.2% for Schroders UK Public Private Trust it reflects slightly lower demand for its shares than there is plc. supply – in other words, there are more marginal sellers than buyers. This can happen for a number of reasons, such as uncertainty about the outlook for the asset class the trust is invested in, or a lack of interest or liquidity in a particular market or investment theme. ‘TRY TO UNDERSTAND WHY AN INVESTMENT TRUST SHARE PRICE HAS DEVIATED FROM ITS NAV BEFORE MAKING AN INVESTMENT DECISION’