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Investors look to snap up investment trust bargains

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Investors look to snap up investment trust bargains
Investment Week, 26 March 2020, by David Brenchley

Discounts as wide as during financial crisis

Clients at interactive investor said they were more interested in buying investment trusts now than they were a week ago. A survey run by the investment platform between 23 March and 25 March showed 26% of clients said they were buying or planning to buy investment trusts, up from 20% in its survey from 11 March and 13 March.

The research comes a day after data showed the average discount in the investment company sector was trading around lows seen during the financial crisis…

UK commercial property trusts post steep declines

…UK commercial property trusts have, as they did during the financial crisis, “posted especially steep declines”, with the current average discount in the sector standing at 32.5% as at 23 March.

…Annabel Brodie-Smith, communications director of the Association of Investment Companies, explained open-ended funds value their portfolio daily, with investors trading at net asset value (NAV). Therefore, she added, “it is not surprising that the impact of coronavirus on the economy and markets makes these daily valuation estimates very difficult to deliver”.

“Investment companies value their properties either quarterly or twice a year, have more time to value their properties and can look at various valuation methods,” she added.

“They also have independent boards of directors who will carefully consider appropriate valuation methods and the impact of market conditions. Investment companies should therefore be able to report their NAVs in the normal way even during stressed markets.”

Richard Williams, property analysts at research firm QuotedData, noted that valuers would “continue to use any transactional evidence they have got and apply what they believe to be a realistic valuation based on sentiment and evidence, and insert a material uncertainty clause”.

“There is obvious downside risk but sentiment is difficult to price. The market is moving very quickly and the speed of change this week on market sentiment has been huge,” Williams said.

“There are not likely to be many transactions in the current market and therefore little evidence to go on. Therefore there is likely to be little movement in valuations until there is transactional evidence of prices falling.”

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