With market volatility spiking higher on US recession fears, has the number of London’s investment companies trading at 52-week high discounts followed suit and move higher too?

12 Aug, 2024

We estimate six investment companies saw their respective share prices trade at 52-week high discounts over the course of the week ended Friday 09 August 2024 – just one more than the previous week’s five.

London’s investment company sector proving to be relatively resilient (so far) in the face of the uptick in market volatility seen in recent days. That’s based on the number of companies trading at 52-week high discounts staying close to year lows. Impressive given that on Friday 2 August 2024, 2-year U.S. Treasury yields fell to 4.10%, the lowest level since May 2023, 10-year yields dipped below 4% for the first time since February, while equity markets lurched downwards with Japanese indices leading the way after shedding over 11% on 5 August 2024. Then on Tuesday 6 August, the VIX Index, a gauge of S&P 500 volatility, recorded its largest daily spike since 1990. The cause, elevated fears that the U.S. economy could slip into recession following a run of poor data. In the case of Japan, a tightening in monetary policy didn’t help much either.

And yet, the number of London’s closed-end funds trading at 52-week high discounts barely budged. The apparent resilience could, of course, prove to be temporary – as the graph above shows it was only back in February/March of this year that the number of 52-wk high discounters soared into the 30s as the narrative of higher-for-longer interest rates took hold.

But perhaps that’s it. This time round, what’s worrying markets are fears of a U.S. recession which could end up forcing the Fed’s hand to bring forward those long-awaited rate cuts. And a lower interest-rate environment could provide a positive tailwind for London’s investment companies. That’s because lower interest rates would likely prompt a lowering in the discount rates used to value assets, resulting in valuation uplifts. Lower interest rates would also reduce the pressure on yields offered by trusts to compete with risk-free assets. And lower interest rates would benefit those funds with high debt levels.

“This time is different”, an overly used phrase that more often than not comes back to haunt market commentators. So, not going to use that phrase here then. Time will tell, will just have to do instead !

The 52-week high discounters

Fund

Discount Sector

Tetragon Financial Group TFG

-72.18%

Flexible

abrdn Diversified Income & Growth ADIG

-40.01%

Flexible

Third Point Investors TPOU

-26.60%

Hedge Funds

JPEL Private Equity JPEL

-44.59%

Private Equity

Regional REIT RGL

-79.45%

Property

Ceiba Investments CBA

-69.64%

Property