Discounts

Doceo Insights

By all accounts, London’s investment companies appear to have banished the discount blues that plagued them for much of the second half of 2023.

Or have they?

For while a dramatic drop in the tally of year-high discounters from those autumn peaks is undoubtedly a positive, before sounding the all-clear, a look beyond the headline numbers is called for, specifically at those investment companies with share prices trading close to year-high discounts. As Doceo Insights’ The 10%ers, the discount doldrums and a search (for positives) noted back in November 2023:

“Not much difference, after all, between a trust trading at its widest discount of the year and one trading a basis point or two off its widest discount of the year. To measure the extent of the discount issue, a more complete picture is needed, one that takes account of all investment companies trading at or close to their 52-week high discounts…” The article goes on to ask, and then answer, the following question: “But how close is close? A cut-off is required. For the purposes of this exercise, the cut-off will be set at those trusts trading at discounts that are within 10% of their respective 52-week highs – the 10%ers. Next step, totting up the 10%ers to see just how big London’s discount issue is.”

Three months on, seems only one thing for it – another roll call of the 10%ers needs to be taken to gauge if the discount doldrums have been well and truly blown away. First though…

A comparator is needed

Helpfully, the above Doceo Insights provides one. As at Friday 27 October 2023, the height of the discount doldrums when a total of 56 investment companies were trading at 52-wk high discounts, another 57 funds were trading within 10% of the then year-high discounts. That makes a grand total of 113 funds, more than a third of the investment company space covered. How does that compare to the situation today?

A quick count followed by a triple check of the results and the number of investment company share prices trading within 10% of their 52-wk high discounts currently stands at…

37

A little over 10% of the sample. A significant drop then. As the headline numbers over the past four weeks have been suggesting, the discount doldrums appear to be on the wane. Certainly, at the overall level. But…

What about individual sectors?

For all might be heading in the right direction at the headline number level, but that doesn’t mean a sector or two can’t still find themselves stuck in the doldrums. After all, there are 37 funds currently suffering from the discount blues. Question is, are they spread evenly across the sectors or do certain ones account for the lion’s share of the 37 names?

The below graphic provides a breakdown of the 37 funds by sector:

Three standouts catch the eye:

• Property tops the list with nine companies trading within 10% of their year-high discounts. That’s almost a third of the funds that are listed among the various investment company property sub sectors.

• Renewables, not far behind in second with seven names. 22 renewable energy infrastructure companies in the space so, as with property, almost a third of renewables still in the discount doldrums too.

• In third spot, debt – accounting for six of the total. Six out of 23 debt funds or around a quarter.

Shouldn’t be a surprise that the above 22, almost two thirds of the grand total, are alternatives. As Doceo Insights The 10%ers, the discount doldrums and a search (for positives) noted at the time: “With interest rates where they are, no surprise to see interest rate sensitive alternative sectors such as property, renewables, private equity, debt and infrastructure at the top of the pile, and by some margin.” Alternative investment company sectors still stuck in the discount doldrums then.

As with the Friday 19 January 2024 list, property and renewables occupy the top two spots, while debt, lying in sixth, still comfortably makes the top ten.

Has to be said though that, while there has been no change at the top, the number of property and renewable 10%ers is still noticeably down on the 27 October level. Currently:

• Nine property cos as opposed to 16 as at 27 October; and

• Seven renewables compared to 15 three or so months ago.

So, while the two sectors may still be in the doldrums, it’s not as bad as it was.