Discount Watch

Seventeen investment companies traded at 52-week high discounts to net asset values last week, highlighting the continued impact of elevated bond yields on alternative funds and a noticeable rise in UK-focused funds making the list. With UK interest rates potentially staying higher for longer, the dynamics for equity income and small-cap funds could face new challenges.

By Frank Buhagiar

We estimate there to be 17 investment companies which saw their share prices trade at 52-week high discounts to net assets over the course of the week ended Friday 29 November 2024 – one less than the previous week’s 18.

For the third week in a row, eight alternative funds make it onto the latest Discount Watch – five renewables, two debt funds and one property investor. As previously noted, higher bond yields likely playing their part here – government spending and borrowing concerns have seen 10-year gilt yields spike up to as high as 4.5% from the 3.75% seen in September. Higher yields can lead to higher discount rates. Higher discount rates are used to value alternative assets and these can lead to lower fund valuations. As long as yields stay at these levels, expect alternative funds to continue to feature prominently on the Discount Watch.

But could there be another theme emerging? For there’s been a jump in the number of UK-focused funds on the Discount Watch to five from one previously – Aurora (ARR) from UK All CompaniesJPMorgan Claverhouse (JCH) and Murray Income (MUT) from UK Equity Income and BlackRock Throgmorton THRG and Marwyn Value Investors (MVI) from UK Smaller Companies. ARR’s appearance can be explained by the issue of new shares as part of its acquisition of Artemis Alpha.

As for the other four, two are UK equity income funds and two come from the UK small-cap sector. Could this be down to the growing narrative that UK interest rates might not be coming down as quickly as hoped? Higher interest rates make it hard for funds to compete with risk-free rates on a yield basis – a headwind for UK equity income funds perhaps. And UK rates coming down more slowly than expected could be holding back the two small-caps funds too – smaller companies typically benefit more from lower interest rates. Be interesting to see if more UK funds make it onto the list, particularly if the Bank of England decides against a rate cut at its last meeting of the year on 19 December.

The top five

FundDiscountSector
HydrogenOne Capital Growth HGEN-76.44%Renewables
Ceiba Investments CBA-74.43%Property
Marwyn Value Investors MVI-54.87%UK Smaller Cos
Gore Street Energy Storage GSF-53.24%Renewables
VPC Specialty Lending Investments VSL-50.01%Debt

The full list

FundDiscountSector
Invesco Bond Income Plus BIPS-2.93%Debt
VPC Specialty Lending Investments VSL-50.01%Debt
Impax Environmental Markets IEM-17.21%Environmental
JPMorgan European Discovery JEDT-12.53%Europe
Lindsell Train LTI-27.13%Global
Worldwide HealthCare Trust WWH-15.81%Healthcare
Ceiba Investments CBA-74.43%Property
Aquila Energy Efficiency AEET-45.05%Renewables
Foresight Environmental Infrastructure FGEN-33.90%Renewables
HydrogenOne Capital Growth HGEN-76.44%Renewables
Gore Street Energy Storage GSF-53.24%Renewables
SDCL Energy Efficiency SEIT-45.65%Renewables
Aurora ARR-13.25%UK All Cos
JPM Claverhouse JCH-7.18%UK Equity Inc
Murray Income MUT-12.97%UK Equity Inc
BlackRock Throgmorton THRG-13.75%UK Smaller Cos
Marwyn Value Investors MVI-54.87%UK Smaller Cos