Discounts on UK mid-cap and small-cap focused investment trusts are narrowing, meaning the gap between their share price and underlying value is closing, according to new research by stockbroker Stifel.
Investment trusts have traded at a discount this past year, where their share price has been notably less than the underlying net value of their assets, due to a mix of depressed pricing in the public markets and high rates of interest.
Investment broker Stifel said in a research note on Wednesday that the share prices of listed trusts investing in the UK small-cap and midmarket are “holding up reasonably well” despite a sharp fall in net asset value (NAV) over the past month.
“A number of UK small and mid-cap specialists have seen their discounts narrow in recent days - we think this reflects some sharp falls in NAVs, with share prices slow to reflect some of these declines, with the result being discount narrowing,” Stifel said in a broker note on Wednesday.
This contrasts with “widening” of the discounts on investment trusts focused on emerging markets and Asia, the broker said.
Investment trust Schroder UK Mid Cap’s discount has narrowed to 8%, which is the smallest it has been in the past six months, Stifel said.
The trust’s average discount over one year has been 11% and its discount peaked at 15% during that time.
International Biotechnology Trust PLC is now trading at a discount of 6%, on the lower to middle end of its 3% to 11% discount range, the broker added.
Stifel said the biotech trust’s NAV has fallen by 2.8% over the past year, but its performance has been “significantly better” than peers that have had declines of up to 20% to their NAVs.
In the research note, Stifel gave a “positive” rating for a number of investment trusts including International Biotechnology.
Excluding emerging markets trusts, that list also included Fidelity European Trust PLC (LSE:FEV), Polar Capital Global Financials, Aberforth Smaller Companies Trust PLC, and Mercantile Investment Trust PLC (LSE:MRC).