One of the attractions of investment trusts is the potential to pick up discounted bargains, which can supercharge NAV returns if correctly anticipated. As we have remarked before, closed-ended funds have historically delivered superior NAV returns. But buying shares on a substantial discount can significantly enhance those NAV returns should the discount narrow on a sustained basis. The reasons for investment companies long run NAV outperformance of equivalent open-ended funds, lies with their structural advantages, as we discussed in detail last year. Firstly, they have the ability to make the best use of less liquid assets and managers can manage those assets without having to worry about inflows and outflows. Secondly, they can employ gearing, which should be accretive to returns over the long run even if timing isn’t attempted, assuming equity markets continue to rise over the course of each cycle. While we tend to focus on the trusts with long-term potential, here we are considering those trusts currently sitting on discounts that have caught our eye. These trusts are trading on unusually wide discounts (at least 10% in absolute terms), but most importantly, have the potential to produce attractive NAV returns (in relative or absolute terms) as well.
