Everybody I know calls me a contrarian. I disagree. Nonetheless, the enduring popularity of our discount portfolio with readers can’t help but pique our interest in contrarian opportunities. With our discount opportunities portfolio, we look for opportunities in investment trusts where we can see a reasonable rationale for a wide discount narrowing and the potential for NAV outperformance too. Several investment managers, such as the managers of Miton Global Opportunities (MIGO) and AVI Global (AGT) themselves seek discounted opportunities in trusts trading below their fundamental fair value. If a discount does narrow, axiomatically it will help share price returns. However, when we updated our research on JPMorgan Mid Cap (JMF) back in March of this year, we noted that historically when the discount had exceeded certain levels, it not only tended to precede periods of share price outperformance but NAV outperformance too. This followed on from our previous observation on the same trust in September 2020, that, when the discount was more than one standard deviation below the historic median level, JMF tended to subsequently see strong NAV outperformance. Inspired by Rodin, this got us thinking. Our thesis was that discounts might not only indicate the potential for a kicker to share price returns but potentially signal contrarian opportunities on a NAV basis too. We’ve looked below at trusts on a sector basis, aiming to identify whether a wide discount across the sector does lead to higher average NAV returns. We used Z-scores, investigating the relationship between discount and subsequent NAV returns at one or two standard deviations below the rolling 12-month discount. We found that typically, a Z-score of beneath -1 or -2 does indeed tend to precede periods of stronger average NAV performance, for most sectors at least. We think this suggests there is merit to adopting a degree of contrarianism and buying on a wide discount, not just in the hope of it narrowing. Such a strategy seems to have been particularly effective in Japan, Asia-Pacific and India, but has not worked universally. We say all of this, of course, with the proviso that past performance is not a reliable guide to future returns – and a big discount may well be there for a good reason, or even for a bad reason; as Keynes famously said: the markets can remain irrational longer than you can remain solvent!