Narrowing of discounts is sign of rally in trust sector, says Oriel Secs

Most investment trusts have been trading at the upper end of their discounts to net asset value range for the past six months, according to Oriel Securities, a stockbroker and adviser firm, indicating a recent rally in the sector.

Neil Hermon
Neil Hermon

The research shows that American and Japanese specialist trusts have seen their discounts widen in the past six months, but the ­discounts of several income orientated trusts continue to be ­narrow as investors chase yields.

As a result, Oriel says there are still relatively few trusts that offer much value on a discount basis.

For example, the Edinburgh US Tracker trust at present sits on a 6% discount, while in the past six months Oriel says the discount has ranged from 7% to 2%. The JPMorgan US Smaller Companies trust, meanwhile, is on a 15% discount against its six month range of 16% to 1%.

One of the few smaller company specialist trusts to offer value, according to Oriel, is the Henderson Smaller Companies trust, managed by Neil Hermon (pictured).

It is trading on a 19% ­discount, which Oriel says is at the upper end of the six month range of 21-14%. (article continues below)

In the income sectors, however, the £530m Merchants Trust, managed by Allianz Global Investors, is trading at a 5% premium, which compares with a six-month range of a 1% discount to a 6% premium.

“A number of the UK Smaller ­Company specialists are trading on close to their narrowest discounts for at least six months, and we think this partly reflects some renewed investor enthusiasm for the sector,” says Iain Scouller, an analyst at Oriel.