Should you take advantage of a half-priced investment trust to get a deal?

By historical standards, 26 investment trusts appear inexpensive, with some of them trading at a discount of over 50%

Are they a deal or a trap?

The London Stock Exchange is where investment trust shares are bought and sold. Accordingly, trusts have two prices: their net asset value (NAV) and their share price.

How much demand there is for the trust's shares determines the share price. How well the underlying assets perform determines the NAV. The outcome is that investment trusts may trade at a premium or a discount.

There have been some significant sales recently. The analysis from investment platform AJ Bell shows that 26 investment trusts are trading at a discount that is more than five percentage points higher than the five-year average.

Astute bargain hunters might have noticed that two, including FTSE 250 index member Syncona, a life science investor, are trading at a discount of over 50%. An additional four are currently trading at a discount of over 40 percent.

As stated by Dan Coatsworth, an investment analyst at AJ Bell, "discounts can give savvy investors the chance to buy assets for less than they are worth, at least in theory, but in practice it is important to do some digging and understand why a discount exists."

"Purchasing at a discount isn't always a good idea because the price of investment trusts is determined by a number of factors, such as the manager's track record and market sentiment toward the strategy. However, there may be a valid explanation for a persistent discount to NAV.

Association of Investment Companies/AJ Bell is the source. as of May 29, 2025.

Is an investment trust a good deal or a trap?

For instance, biotech trusts are currently inexpensive due to challenging market conditions, so some trusts are discounted for a reason. Due to its capital-intensive nature, the industry typically faces difficulties when interest rates are high.

Following Donald Trump's election and his selection of Robert F. Kennedy as US health secretary, the biotech and healthcare industries have also factored in uncertainty surrounding regulations and tariffs.

Kennedy, who founded the anti-vaccine organization Childrens Health Defense, has been described as a vaccine skeptic. Trump has also threatened to impose "major" tariffs on pharmaceutical imports, which could result in higher drug prices.

Changes at the US Food and Drug Administration (FDA) have also raised concerns that they may delay the approval of novel treatments.

There are difficulties in other industries and asset classes as well. For instance, AJ Bell's list of discounted trusts includes a number of portfolios that are exposed to private market assets. "Investor fears about market conditions not being conducive to selling stakes in private holdings" are what Coatsworth claims are reflected in the discounts.

The list has also been influenced by certain fund-specific factors. One such example is the Lindsell Train Investment Trust. Along with other international assets, this trust exposes investors to the private asset management company Lindsell Trains.

The success of Nick Train's funds made investors eager to pay for access. As a result of poor performance in recent years, the trust is currently languishing at a discount, according to Coatsworth.

How an investment trust should be chosen.

Investigating investment trusts further is crucial before investing money, but valuations can be a useful place to start. Examine the trust's goal, the assets it holds, the industry or region's prospects, and the manager's performance history.

Assessing the trust's performance against a standard can also be beneficial. At various stages of the market cycle, all industries go through ups and downs, but a manager who can regularly outperform the benchmark might be worth the investment.

When purchasing a trust at a reduced price, savvy bargain hunters should also think about their goals. According to Coatsworth, "long-term investors tend to be less fixated on the gap between share price and NAV, long-term traders may invest at deep discounts in the hope that they narrow quickly."

A discount will narrow the discount, so if you purchase a trust at a discount and the share price increases faster than the NAV, you will receive a higher return than the NAV. But keep in mind that a strong foundational performance is insufficient by itself. Selling at a profit is not possible unless demand for the trust increases and raises the value of your shares.

To think about are two discounted trusts.

Coatsworth believes that RTW Biotech Opportunities and Baillie Gifford Japan are two trusts that might be worth looking into out of those on the discount list.

We have already discussed the reasons why biotech is not popular, but RTW's discount is being driven more by industry-related risks than by issues with the trust itself.

Based on NAV returns, the trust has significantly outperformed the Russell 2000 Biotech Index over the last one, three, and five years, according to its most recent factsheet. Over three and five years, it has also outperformed another benchmark, the Nasdaq Biotech Index. In spite of this, the share price is still more than 30% behind the NAV.

Given how weak sentiment is, Coatsworth stated, "an investor with a high appetite for risk might view this as an opportunity to invest in RTW." "Investing in biotechnology requires a long-term perspective, and some of the best times to do so are when others are feeling very pessimistic.

"RTW is a full life cycle investor, which means it can identify next-generation therapies and invest at different stages of a company's development," he says. Companies in the portfolio could be MandA targets for large pharmaceutical companies.

Currency-related factors may have contributed to the trust's 12% discount in the case of Baillie Gifford Japan. Because of the weak yen, returns for UK investors have been diluted when they were converted back into sterling.

Coatsworth stated, "A larger than usual discount on Baillie Gifford Japan creates a good excuse to take a closer look at what's on offer, as the negative currency issues are now going away."

He believes that from a regional standpoint, Japan has many positive aspects. Through increased corporate governance and larger dividend payments, businesses are becoming more shareholder-friendly.

In contrast to the high levels of corporate, consumer, and sovereign debt in the West, valuations are low and many businesses are cash-rich, which is welcome.

Note that the trust targets companies with above-average growth potential and concentrates on small and mid-cap stocks instead of large-cap stocks.