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Increased demand drives record low investment trust discounts

Increased demand and measures such as share buybacks have driven the average investment trust discount down to its lowest level since records began.

Morningstar data compiled for the Association of Investment Companies shows the average investment company closed 2013 at a discount to net asset value of 3.4 per cent.

This is the lowest since records began in December 1970. Since then, the closest an average discount has come to 2013’s all-time low was in February 2006 when it was 3.5 per cent.

AIC director general Ian Sayers says: “A strong period of performance, the dividend track record, access to specialist asset classes and the impact of RDR have all come together to boost interest in investment companies.”

The highest average investment company discount was seen in October 1976, when it peaked at 41.5 per cent.

Discounts have since been driven down by increased demand for trusts as well as powers to control discounts such as share buybacks and the ability to hold shares ‘in treasury’.

Chase de Vere head of communications Patrick Connolly says: “I am not surprised by this drop as would expect discounts to come down when stock markets are doing well. People tend to trade in them when stock markets perform.

“You also have the added benefit that people are looking at trusts more because of the RDR. There has not been a wholesale move from open ended funds to trusts yet, but it will happen over time.”


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