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For nearly two decades, Davenport Thomas’s highly experienced team has worked closely with numerous accountancy practices to support their clients with a wide range of financial planning needs.

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Wide discounts available on investment trusts

19th Apr 2024
Brought to you by
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For nearly two decades, Davenport Thomas’s highly experienced team has worked closely with numerous accountancy practices to support their clients with a wide range of financial planning needs.

Save content
Have you found this content useful? Use the button above to save it to your profile.

We think that investment trusts are one of the best-kept secrets for investors looking at putting a portion of their money aside for ten to fifteen years – particularly for retirement funds that won’t be needed within that timeframe. And now is a great time to benefit from the discounts available.

Investment trusts explained

You may be more familiar with unit trusts which are Open-Ended Investment Companies (OEICs). Investment trusts are also investment companies, but they are closed-ended active investment funds, with a fixed number of shares in issue. They trade like traditional stocks and shares, whilst investing like funds. 

Investment trusts have other advantages. They can borrow money to boost returns, usually through fixed-rate debt such as bonds and debentures, and at low cost. Their closed-ended nature means they’re well-suited to buying and holding illiquid assets such as property.

Nothing new

The first investment trust was set up in 1868 by Foreign & Colonial, so we’re not talking about anything new here. What is different is that when market sentiment is poor, the investments trade at a discount – which gives investors a great opportunity to snap up £1 of assets for 90p or less.

A good buy right now

Due to their closed-ended structure, investment trust shares trade with supply and demand, which can result in them trading at a discount to the value of their underlying portfolio net asset value (NAV). Discounts were last this wide during the financial crisis in 2008/9. As a result of discounts like these, we’ve seen some clients investing for retirement being able to buy £80k of assets for only £60k.

When you buy Investments on a wide discount and then things return to normal, and the discount subsequently narrows it creates a double whammy leading to oversized returns. Here’s a graph to illustrate; funds A and B are funds we have been recommending and fund C is the average.

Wide discounts available on investment trusts | Davenport Thomas | Graph comparing three investment trusts portfolio options.
Davenport Thomas - portfolio graph of performance line chart

Suitability

However, you need to remember that higher risk investments such as these are only suitable for those who understand the more aggressive nature of such investments and can afford to invest for the longer term.

 

At Davenport Thomas we have been helping clients craft retirement and investment strategies for over 18 years. So, for a discussion about how we can help you and your clients, you can book directly into Richard’s diary here, email us or call us.

[email protected]
Contact number – 0208 6182077
Calendly - Richard Mumford

 

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The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. A pension is a long-term investment not normally accessible until 55 (57 from April 2028).