Investment trust discounts have almost halved over the last couple of years, and it is widely believed that within the next 18 months, they could be removed.
The average investment trust discount has fallen from 12.7% in January 2004, to 6.8% because of a strong performance by the investment trust sector, and lots of trusts are now introducing discount control mechanisms.
Our view
Investment trusts are different in that their value is created by confidence in the manager and demand for the shares, it is not the actual value of the underlying investments inside the fund that dictates its value. Discounts are not discounts as most people understand them.
Given that the underlying investments have performed well, perhaps confidence is returning and discounts i.e. the difference between the trading/share price and the actual investments value inside the Investment trust are narrowing.