When Saba Capital attempted to oust the boards of seven UK investment trusts, it highlighted that one of the reasons it did so was because of their widening discounts. This is not just an issue for individual investment trust companies, but for the sector.
Quill PR asked Peter Hewitt, Fund Manager of CT Global Managed Portfolio Trust, his thoughts on why discounts in the UK investment trust sector have widened over the past couple of years and what can be done to close them, and we’re pleased to share Peter’s insights as follows:
Peter Hewitt, Fund Manager of CT Global Managed Portfolio Trust, commented: “When it comes to investment trust discounts, I think we need to understand why it’s become such an issue. The UK economy hasn’t grown as fast as it could and, coupled with the rise in inflation and interest rates, there was an absence of buyers which did not supply demand for shares – so of course discounts for certain trusts were going to widen. In 2021, the average sector discount was at 2%, and over the last few years it increased to 16%. But there’s not a lot you can do to about this – it’s not easy to fight against important macro trends.
“However, the boards and management of investment trusts now have to be rigorous in closing the discount gap and issue share buybacks. In the past, they have been reluctant to do so due to fears that it will drastically shrink the size of their trust, to the point that private wealth managers might not be interested in them if they are too small but if more investment trusts did this, yes, it may shrink and the investment trust sector may well be smaller, but they’ll keep shareholders happy and ensure that they have right rating and a better share price.
“The increase in AUM (Assets Under Management) targets for wealth managers has significantly reshaped the investment landscape. With the amount moving from £100m to around £500m, smaller investment trusts and niche funds often struggle to gain traction with larger wealth managers and institutional investors.
“In order for share buyback policies to make a difference, they would need to make sure that the quantum of the buybacks is materially different and not just one-offs. With this in place there would be a lot less discount volatility, which would arguably be more attractive for potential buyers such as private wealth managers and multi-asset funds.”
Perhaps in the fullness of time, we might thank Saba Capital for highlighting the widening discount in the UK investment trust sector. However, for now the boards of investment trust companies must look to closing the discount gap and ensure that their shareholders are happy.
