Should you bag a bargain with a half-price investment trust?

Shares in investment trusts are bought and sold on the London Stock Exchange. This means trusts have two prices – a share price and a net asset value (NAV).

The share price is determined by how much demand there is for the trust’s shares. The NAV is determined by the performance of the underlying assets. As a result, investment trusts can trade at a discount or a premium.

Recently, some big discounts have opened up. Twenty-six investment trusts are trading at a discount that is more than five percentage points greater than the five-year average, according to analysis from investment platform AJ Bell.

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Keen bargain hunters may have spotted that two are trading at a discount of more than 50%, including life science investor Syncona, a constituent of the FTSE 250 index. A further four are trading at a discount of more than 40%.

“Discounts can give savvy investors the chance to buy assets for less than they are worth, at least in theory, but in practice it is important to do some digging and understand why a discount exists,” said Dan Coatsworth, investment analyst at AJ Bell.

“Buying at a discount isn’t automatically a good thing, because the price of investment trusts depends on a raft of factors ranging from market sentiment towards the strategy to the manager’s track record, so there may be a good reason that explains a persistent discount to NAV.”

^{Source: Association of Investment Companies/AJ Bell. Data to 29 May 2025.}

Investment trusts: bargain or value trap?

Some trusts are discounted for a reason; for example, biotech trusts are currently cheap because of tough market conditions. The sector is capital intensive, meaning it generally struggles during periods of high interest rates.

Regulatory and tariff-related uncertainty have also been priced into the biotech and healthcare sectors following the election of Donald Trump and his appointment of Robert F Kennedy as US health secretary.

Kennedy has been characterised as a vaccine sceptic, having founded Children’s Health Defense, an anti-vaccine group. Meanwhile, Trump has threatened to announce “major” tariffs on imported pharmaceuticals, which could push up the cost of drugs.

There are also concerns that changes at the US Food and Drug Administration (FDA) could slow down the approval of new treatments.

Other sectors and asset classes are facing challenges too. AJ Bell’s list of discounted trusts features several portfolios with exposure to private market assets, for example. Coatsworth says the discounts reflect “investor fears about market conditions not being conducive to selling stakes in private holdings”.

Some fund-specific factors have helped shape the list too. The Lindsell Train Investment Trust is one such example. This trust gives investors exposure to Lindsell Train’s asset management business, a private company, alongside other global assets.

“When Nick Train’s funds were doing well, investors were happy to pay up for access. Performance hasn’t been as strong in recent years, hence why the trust now languishes at a discount,” said Coatsworth.

How to pick an investment trust

Valuations can be a good starting point when researching investment trusts, but it is important to dig deeper before pumping money in. Look at the objective of the trust, what assets are held within, the outlook for the sector or region, and the manager’s track record.

Comparing the trust’s performance to a benchmark can also help. All sectors experience ups and downs at different points in the market cycle, but a manager who is able to consistently beat the benchmark could be worth paying up for.

Keen bargain hunters should also consider what they are trying to achieve when buying a trust at a discount. “Short-term traders may invest at deep discounts in the hope they narrow quickly, whereas long-term investors tend to be less fixated on the gap between share price and NAV,” Coatsworth explains.

If you buy a trust at a discount and the share price rises more quickly than the NAV, you will get a better return than the NAV (as the discount will have narrowed). However, remember that strong underlying performance on its own is not enough. Unless demand for the trust picks up and boosts the value of your shares, you won’t be able to sell at a profit.

Two discounted trusts to consider

Of the trusts listed in the discount list, Coatsworth thinks RTW Biotech Opportunities and Baillie Gifford Japan could be worth a look.

Biotech is out of favour for reasons we have already explored, but RTW’s discount is being driven by sector-related risks rather than challenges with the trust itself.

As the trust’s latest factsheet shows, it has decisively outperformed the Russell 2000 Biotech Index on a one, three and five-year basis, based on NAV returns. It has also outperformed the Nasdaq Biotech Index, another benchmark, on a three and five-year basis. Despite this, the share price is lagging behind the NAV at a significant margin – more than 30%.

“An investor with a high appetite for risk might view this as an opportunity to invest in RTW, given sentiment is so weak,” said Coatsworth. “Some of the best times to invest are when others are incredibly gloomy, and putting money into biotech is all about taking a long-term view.”

He points out that RTW is a full life cycle investor, meaning it can invest at different stages of a company’s development and identify next-generation therapies. The portfolio includes companies that could become M&A targets from big pharma.

When it comes to Baillie Gifford Japan, part of the reason for the trust’s 12% discount could be currency-related. The yen has been weak, meaning UK investors have seen their returns diluted when converted back into sterling.

“The negative currency issues are now going away, meaning that a wider than average discount on Baillie Gifford Japan creates a good excuse to take a closer look at what’s on offer,” Coatsworth said.

In his view, there is a lot to like about Japan from a regional perspective. Companies are becoming more shareholder-friendly, such as paying more generous dividends and having higher levels of corporate governance.

“Valuations are cheap, and many companies are cash-rich which is refreshing when compared to high levels of corporate, consumer and sovereign debt in the West.”

It is worth pointing out that the trust focuses on small and mid-cap companies rather than large-cap stocks, targeting those with the potential for above-average growth.