Investment Trust Show: Are the tides changing in favour of investment trusts?

**Hannah Williford** (0:08)
Hello, and welcome to July's edition of the AJ Bell Investment Trust Show. I'm Hannah Williford, and I'm here with Dan Coatsworth.

**Dan Coatsworth** (0:17)
Hello there, and hello to everyone tuning in to the show.

**Hannah Williford** (0:21)
So for any new listeners to the podcast, these are special monthly episodes to look a bit more closely at the world of investment trusts and talk to people in the industry to get a better feel of what's going on under the bonnet. So what have we got going on today, Dan?

**Dan Coatsworth** (0:40)
We got some really good information about investment trust discounts. We're going to hear from Eve Maddock-Jones and Martin Gamble, who are going to talk about the flip side of that. They're going to talk about premiums and also the interesting trends that they've been spotting.
I'm going to have a chat with Luke Finch from HG about why the private equity group plans to more than double its stake in HG Capital Trusts following a bit of a slump in the Investment Trust share price.

**Hannah Williford** (1:07)
And I spoke with Rob Lloyd from JPMorgan Asia Growth and Income Trust to see what their next move is in a sector that's already booming. Then Dan's going to finish it off by speaking to Temple Bar Chair Charles Cade about annual general meetings and what investors can get out of them.

**Dan Coatsworth** (1:28)
Well, I reckon before we move on to those interviews, Hannah, why don't we sort of have a quick check in on the investment trust sector as a whole? So I guess it's no secret that the past few years have been kind of difficult for this space in the sort of the investment universe. And part of that is down to investors being less willing to sort of pay up to to to buy shares in this area. So I know that you've been having a look at stuff like discounts to share buybacks and stuff. So what have you actually found then, Hannah?

**Hannah Williford** (1:59)
Yeah, so you're completely right. It's a sector that in the past couple years has faced a lot of discounts. And in one way to try to help with those discounts have been initiated quite a lot of share buybacks. There's also been a lot of outside influence from our favorite subject, Selva Capital.
So it's made it a very interesting time for investment trusts. But I've got some good news for those who are a fan of what is really quite a unique investment vehicle. So at the end of May, the average discount for an investment trust was 9.6%, which is the first month it's been below double digits since August 2022
Now, these are a couple terms that are probably good to explain. So when we're talking about discounts when it comes to investment trusts, that's referring to the difference between the net asset value. So how much the assets in the trust are actually worth and the price that shareholders are willing to pay for it. So because investment trusts are actually a company and investors are buying shares in that company, the price of what's actually held in the trust and what people will pay for it doesn't always exactly align. So basically what we've seen over the past couple of years is that people have not been willing to pay full price for the assets inside of a trust. And we're starting to see a little shift here.

**Dan Coatsworth** (3:44)
Why do you think that's happening then?

**Hannah Williford** (3:47)
So I think there are a couple things that are shifting right now. One is that there's quite a lot of investor momentum behind private companies. And investment trusts are one of the easiest ways for retail investors like you and I to start accessing private companies. So, for example, before SpaceX IPO, one of the only ways that investors could get access to any kind of share in the company was through an investment trust in the UK.
There's also some more technical elements that we'll not dig too deeply into now, but because of how the costs for investment trusts have to be documented, and because of some regulation changes in the past couple of years, it was sort of making investment trusts look a bit more expensive than they actually were, and sort of we're double counting those costs in some ways. There's been a lot of regulation change in the past year or so to rectify that. So I think that we're starting to see a little bit more affection return to the sector. But I will say this is all in perspective.
When you look back to 2021, 2022, the discounts were often an average of less than 5%. So we still have some ways to go until we get back to that sort of place.