Investment trusts offer a popular way of accessing markets but it’s important to understand their ‘premiums’ and ‘discounts’. This article considers how CT Global Managed Portfolio Trust’s fund manager, Peter Hewitt, draws on his decades of experience to identify the ripe and valuable opportunities amongst the discounts.
Key takeaways:
- Investment trusts usually trade at a premium or discount according to investor demand.
- But just because an investment trust is trading at a wide discount doesn’t necessarily mean there’s an underlying issue with it.
- CT Global Managed Portfolio Trust’s fund manager, Peter Hewitt, carefully identifies the opportunities amongst the discounts.
Investment trusts are a popular way of investing in the stock market. The first one was established in 1868 with the aim of making investing more accessible to everyone. These early investment trusts allowed those of more moderate means the same access to markets as large investors and organisations.[1] Their success has led to millions of private investors putting their savings to work in equities, bonds, and other assets. Over 150 years later, investment trusts remain an important part of the investment landscape, used by investors all around the world.
CT Global Managed Portfolio Trust is an investment trust, established in 2008 and run by an experienced fund manager, Peter Hewitt. It has a global remit, so investors are exposed to assets from all over the world. But before investing in a trust like CT Global Managed Portfolio Trust, it’s important to understand how they work. A quick google reveals technical terms like ‘NAV’, ‘discount’ and ‘premium’, which this article explains.
What is a NAV? What is a discount?
An investment trust is a public company, listed on a stock exchange. Like other listed companies, anyone can buy shares (otherwise known as equities) in an investment trust. As trusts issue a limited or fixed number of shares, they are described as ‘closed-ended’. That means for someone to buy shares in an investment trust, it usually means someone else has had to sell theirs.
Anyone who decides to invest in an investment trust is described as a shareholder. They buy shares at the price stated at that time, known simply as the ‘share price’. However, an investment trust also has a ‘NAV’ or a net asset value. The NAV represents the value of all the underlying investments the trust holds, minus any debt or loans. Dividing the NAV by the total number of shares issued will give you the NAV per share.
If the share price and the NAV per share are equal, the investment trust is said to be trading at par. But if the share price is higher than the NAV, the trust is described as trading at a premium. That means there is strong demand from investors to buy shares in the investment trust, and as such, they are willing to pay a premium for them.
If the share price is lower than the NAV, the investment trust is described as trading at a discount. Discounts can imply there is lower demand for the trust, and at face value, may be perceived as negative. However, an investment trust could be trading at a discount for many reasons, and not all of them signal an issue with the trust. A discount could simply reflect negative market sentiment, which may then make a discounted but well-run investment trust look like a good buying opportunity.
How CT Global Managed Portfolio Trust works
CT Global Managed Portfolio Trust is a closed-ended investment trust which invests in other closed-ended investment trusts. Its global remit means it can pick and choose the best trusts from all over the world. Fund manager, Peter Hewitt, conducts a thorough analysis of a trust before investing in it. That analysis includes a trust’s price, its discount, and the possible reasons for that discount.
There is no single factor which causes discounts. However, higher interest rates and fear of a recession has made investors cautious. Many have subsequently sold their shares in investment trusts, so there’s been an oversupply which has led to wider discounts.
These global themes affect most share prices somehow. The key is finding the good value opportunities and anomalies in amongst the lower prices and discounts. It’s the skill of the fund manager to understand which discounts are simply irregularities of otherwise well-run funds (presenting an opportunity). And which discounts signal a more serious, long-term issue with the fund. There is no shortcut to success here, the ability to spot a good opportunity comes with plenty of experience, and thoughtful and thorough analysis.
CT Global Managed Portfolio Trust holds several trusts trading on historically wide discounts, specifically some smaller company specialist trusts which are trading on discounts ranging between 10% – 15%. These wide levels highlight how out of favour these trusts have been and the excellent value they might offer.[2]
Private equity trusts also moved out to very wide discounts, often over 40% in 2022. These discounts were due to recessionary fears and a belief that the underlying asset values for these trusts would fall. Most of these fears never came to fruition so these trusts either held their value or made small gains. That shows that a trust trading on a 40% discount can be well placed to generate positive performance soon.
Navigating investment trusts
Investment trusts can be a valuable tool to enable investors to put their savings to work, but their structure can make them a little more complex to understand than some other types of fund. The key is remembering that a trust running at a discount doesn’t necessarily make it an unattractive opportunity. Careful selection can lead to good value opportunities and anomalies from the lower prices and discounts.
Investment risks
The value of your investments and any income from them can go down as well as up and you may not get back the original amount invested. Gearing is used for investment purposes to obtain, increase or reduce exposure to an asset, index or investment. The use of gearing can enhance returns to investors in a rising market, but if the market falls the losses may be greater.
There is no guarantee that dividends will continue to be paid.
[1] https://www.ftadviser.com/investments/2019/03/21/the-history-of-investment-trusts/
[2] https://docs.columbiathreadneedle.com/documents/CT%20Global%20Managed%20Portfolio%20Trust%20PLC%20-%20Annual%20Report%20and%20Accounts.pdf?inline=true (page 21)
Issued by Columbia Threadneedle Management Limited and approved for distribution 13/12/24.
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