Investments' best kept secret?

This week, we launched our new Rated Investment Trust tables, showcasing the 48 Trusts which made our Rated list.

Investment Trusts are basically companies which exist to make money by buying and selling investments. We can buy a share of these Investment Trusts and, in doing so, get access to many investments under one bonnet.

They’re typically fairly spicy, actively managed and invest in shares or private equity assets and infrastructure. I think they’re great for people who want a decent, reliable income from their investments, those who want to access less commonly available assets or those who want a collection of shares which can be ‘pumped’ a little by borrowing to increase the stake (‘gearing’).

Investment Trusts can be the industry’s best kept secret – widely used by City folk, by financial advisers, accountants and solicitors, but generally overlooked by retail investors. There are some brilliant ones out there. Fancy a 5% income from investments? Want to diversify away from tech? Own some mid-sized privately owned companies. Some lesser-known Asian shares?

We wanted to create a shortlist which picked decent performers which are well-governed, appropriate for retail investors and had good communications and supporting content. Good all-rounders.

Discount, anyone? 

Some of the Investment Trusts have large discounts, a quirk of these structures. What does this mean?

It’s a bit like the Space NK beauty advent calendar, which has 24 goodies in it valued at about £1,000 if you add them all up individually, but the calendar is priced at about £300. In this example, the £1,000 is the Net Asset Value and the £300 is the price. So, my calendar is trading at a whopping 70% discount. Whoopee!

Well, hang on. Discounts can make something a fantastic bargain but on the flip side there is no guarantee that it will reverse any time soon and come back to the ‘real value’. And they could also indicate a sector or Trust in trouble.

Here’s an example. Lots of the private equity trusts (they buy shares in companies which are not traded on a stock exchange which you buy with private negotiation) are trading a big discount today. Why?

It’s not a great environment for selling businesses. All the privately held companies they invest in might be absolutely marvellous, but if they’re not selling themselves (think SpaceX’s recent IPO),  then no-one gets any money back. Imagine you invest in the new baker’s shop in your town. OK, Mrs Strudel, I’ll give you £10,000 in exchange for 10% of your bakery. This is all lovely, but if Marge Strudel doesn’t ever sell her shop, that 10% is only a certificate and you don’t get your hands on the actual wonga.

It’s also hard to prove the valuations. The beauty firm might say the celestial Himalayan goat tears eyelash plumper is worth £80, but you only have their say so because it’s not on any publicly traded shelves. So, people are a bit suss about what the contents are really worth.

And finally, interest rates are high. And when known returns on cash today are higher, people feel less inclined to tie up money in more risky long-term stuff. So tough times for private equity trusts = discounts.

This is a whopping bargain if you think it’s overdone and will reverse (which seems to be the consensus analyst view). Or bad news if you think things will sit like this for years.

Have a look, see what you think?

This exercise reminded me that there are some great Investment Trusts out there catering for a huge range of needs and actually providing interesting diversification to the usual tech-heavy global index funds. Have a look and see what you think.

“The Only Way Is Up, Baaaaby”

Yesterday, the European Central Bank increased interest rates, despite falling growth. This is a clear signal that inflation is Public Enemy Number One. The Bank of England meet next week. The consensus view is they will hold rates at 3.75% for now. But looking at what’s going on around the world, to quote 80s pop star Yazz, it feels increasingly likely that as we head into 2027 “The Only Way Is Up.” (Apologies for the earworm).

Baillie Gifford’s team have an update on the bond markets, which are being uncomfortably interesting at the moment!

A final note for the week. My sister is a very talented garden designer. Her design, The Clearing, is an approved RHS Chelsea Flower Show garden for 2027, in the Container Garden category – one of Chelsea’s popular smaller garden categories, located within the main outdoor showground.

She’s looking for a sponsor so she can build it. Nice opportunity for a corporate – you can host people after hours at Chelsea (I’d love to come, thank you!) and get the entertainment/brand shebang. More info here if anyone’s interested.

Have a wonderful weekend, everyone. Spring high tides today, so I’m off to jump in the sea to get mine started.

Holly