Investment trusts: how to exploit the discount

Because they regularly trade at a discount to their net asset values, investment trusts, listed alongside normal stocks on a stock exchange, can offer great investment opportunities. Providing, that is, that you know how to take advantage of them. Theo Casey explains.

Value investors love investment trusts because they boast something no other type of fund can. Trusts which are funds listed on the stock exchange like a normal company will regularly trade at a discount to their net asset values (NAV). Traditional funds may hold stocks that are cheap relative to the market, but they can only be bought at the value of their assets. Trusts can trade at a further discount to the sum total of their holdings. And it's this idea of buying £1 for 90p that sets value investors' pulses racing.

This discount presents some great investment opportunities, since it will often be more profitable for you to buy a trust than a traditional fund. For example, if you'd bought the iShares Emerging Markets ETF (LSE: IEEM) a year ago, you'd have made a 153% return since then. Not bad.

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Theo Casey

Theo is a former financial writer and editor, having written for reputable titles such as Euromoney Institutional Investor and Redwood Publishing. He has also appeared on-screen with Al Jazeera, BBC and CNBC and on MoneyWeek Theo covered funds, share tips and stockmarkets. He also edited the country's oldest newsletter with Lord Rees-Mogg for four years. Theo now runs his own content marketing agency for financial companies, and he is a seasoned CISI-qualified investment adviser.