Best and worst: Discounts on international investment trusts

FOREIGN & Colonial Investment Trust moved to trading at a premium for the first time since 1972 this week, writes Caroline Merrell.

Trading at a premium means that investors are paying more for shares than their net asset value. But when the investment trust shares are trading at a discount, investors are buying below the net asset value.

Investment trusts move to a premium when demand for their shares outstrips supply.

The dilemma facing investors is whether they should pay extra for getting into a trust that may outperform in the long run, or pick a trust trading at a discount, which could point to a less sparkling performance but might offer opportunities for narrowing the discount and so buying the assets cheaply.

Craig Walton, F&C head of marketing, said that its share plan was providing a continuous flow of retail money to support the share price. A sum of pounds 100 invested in the fund three years ago would now be worth pounds 228.

The only other investment trust in this sector trading at a premium is Bankers, run by Henderson Touche Remnant. It is considering the issue of more shares to eliminate the premium.

Two of the funds trading at the biggest discount have shown creditable performances over the past three years. For example, pounds 100 in the Investment Trust of Guernsey three years ago would now be worth more than pounds 200.

----------------------------------------------------------------- Discounts on international investment trusts ----------------------------------------------------------------- The highest Premium/discount 1 Baring Tribune. . . . . . . . . . . . . . . . . . . . . . . . .-13 1 Mid Wynd International. . . . . . . . . . . . . . . . . . . . .-13 3 Investment Trust of Guernsey. . . . . . . . . . . . . . . . . .-12 3 Scottish Eastern. . . . . . . . . . . . . . . . . . . . . . . .-12 5 Scottish American. . . . . . . . . . . . . . . . . . . . . . . -12 The lowest 15 Second Alliance. . . . . . . . . . . . . . . . . . . . . . . . .-7 15 Edinburgh Investment. . . . . . . . . . . . . . . . . . . . . . -5 17 Personal Assets. . . . . . . . . . . . . . . . . . . . . . . . .-3 17 Sphere Units. . . . . . . . . . . . . . . . . . . . . . . . . . -3 18 Foreign & Colonial. . . . . . . . . . . . . . . . . . . . . . . -1 19 Bankers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Figures are for December 31, 1993. F&C now trading at a premium. ----------------------------------------------------------------- Source: AITC -----------------------------------------------------------------