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Investment trust discounts halved

Investment trust discounts have almost halved in the past two years and could be almost eliminated within 18 months, acc-ording to iimia investment guru Nick Greenwood.

The average investment trust discount has fallen from 12.7 per cent at the end of January 2004 to 6.8 per cent because of a combination of strong performance from the investment trust sector and widespread corporate activity, with a number of trusts introducing discount control mechanisms.

Greenwood says discount control mechanisms will be universal within 18 months as investment trust boards look to ensure narrow discounts to appeal to investors and stave off arbitrageurs.

He says the targeting of the 1bn Scottish Investment Trust by “trust-buster” Carrousel Capital shows no trust is off limits for arbitrageurs.

Greenwood says: “Discount control mechanisms will be universal by the end of next year. Trust boards know that if they let the discount grow the arbitrageurs will take them out.”

AITC communication director Annabel Brodie-Smith says discounts are at their lowest level in a decade and she expects them to narrow further barring a market shock.

She says: “There are a number of reasons why discounts have narrowed. Performance has been very strong, with the average trust up by 36 per cent last year, helping the supply and demand dynamic. Trust boards have also been very proactive in introducing discount control mechanisms.”

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