Discounts bring despair
The increase is due to over- supply and under-demand. The number of trusts has increased and traditional investors have been selling, while demand for their shares has not kept up.
In 1993, investment trusts were booming. Many traded on narrow discounts and a few were at a premium. During that year, the FT-SE All-Share index rose 23 per cent while the average trust went up 46 per cent. This led to a glut of new trusts.
Before long, supply outstripped demand and discounts began to rise. The problem was compounded by lacklustre performance as many trusts invested in difficult areas such as emerging markets, rather than in British and American blue chips which continued to do well.
Sterling's strong performance has added to the problem, because many trusts have part or all of their assets overseas.
Efforts to reduce discounts include boards putting pressure on or sacking managers if their trust is not performing well. Elsewhere, boards have approved schemes to buy their own shares to try to reduce the discount, a recent example being Mercury European Privatisation. Govett Global Smaller Companies has announced plans to convert into a unit trust. This will eliminate the discount as unit trust prices are based on the value of the underlying assets and not stock market forces.
Other funds have merged. This happened recently with Edinburgh Japan and Dunedin Japan, while Henderson merged two trusts to form Henderson High Income. Predator activity has also increased. Scottish Value Management (SVM) has acquired large stakes in several trusts and then tries to persuade them to make changes or hand over the management.
- 1 'Sickening, deluded and unforgivable': Horrific attack brings terror to London’s streets
- 2 Mothers' diets may harm IQs in two-thirds of babies
- 3 Far-right French historian, 78-year-old Dominique Venner, commits suicide in Notre Dame in protest against gay marriage
- 4 Eyewitness Ingrid Loyau-Kennett gives extraordinary account of her confrontation with Woolwich attackers
- 5 Woolwich attack: The EDL might have a sinister plan as a soldier is murdered in suspected Islamic terrorist attack
BMF is the UK’s biggest and best loved outdoor fitness classes
Find out what The Independent's resident travel expert has to say about one of the most beautiful small cities in the world
Win anything from gadgets to five-star holidays on our competitions and offers page.
Day In a Page
A modern home of almost 1,000sq ft is close to Stoke Newington's high street. £499,950
A five-bedroom bungalow in Hoveton with riverside garden and mooring dock, £550,000
A refurbished one-bedroom flat with south-facing reception and high ceilings. £579,950
A four-bedroom Grade II-listed house in Nazeing with large gardens. £550,000
A modern four-bedroom house in a converted stable within walking distance to Peckham Rye. £695,000
Three-bedroom house in a quiet residential area within close distance to Battersea Park. £450,000
A three-bedroom cottage within commuting distance of London, Norwich and Cambridge. £250,000
A two-bedroom cottage with a sun room and gardens in South Chard. £350,000.
A three-bedroom semi-detached house with original features including fireplaces and wooden flooring. £399,950
A modern two-bedroom flat split across two floors and close to several public transport links. £595,000
A one-bedroom flat with an open-plan reception/kitchen and private balcony. £315,000.
A bright two-bedroom garden flat between South Acton and Chiswick Park. £499,950.
A listed four-bedroom farmhouse with stables, set in four acres. £500,000.
A three-storey family home with four bedrooms and an extended kitchen/diner. £995,000.
A three-bedroom Hamstone cottage in the rolling Somerset countryside. £430,000.
A luxury one-bedroom apartment on the first floor of a converted Victorian house. £425,000.