Investment trusts in the UK often trade at a discount to their net asset value, offering opportunities for savvy investors. However, it’s essential to investigate whether the discount is due to sentiment or structural issues before making a purchase. Trusts trading at a premium may indicate strong management skills.

Investment trusts are closed-end fund companies that trade on stock exchanges, providing investors with access to various sectors and themes. They have two return figures: the share price movement and the net asset value movement. The price of an investment trust reflects both value and investor sentiment.

Discounts on investment trusts represent the difference between the share price and the net asset value per share. Around 200 out of 240 UK investment trusts currently trade at a discount. Understanding why a discount exists is crucial for investors before making a decision to invest.

Investors should carefully evaluate the drivers behind a trust’s premium or discount before investing. Persistent discounts may signal underlying concerns, while a premium could reflect market confidence in the trust and its management. Premiums are volatile and can erode returns quickly if sentiment shifts.

JPMorgan Global Growth & Income, currently trading at a discount, has seen significant growth and narrowed its discount through strong performance and disciplined management. City of London Investment Trust, trading at a premium, boasts a long track record of increasing dividends and a disciplined approach to managing premium and discount.

Investors should consider factors such as fund performance, management tenure, dividend history, and premium/discount management strategies before investing in an investment trust. Understanding the reasons behind discounts or premiums is essential for making informed investment decisions.

Read more at Morningstar: Should You Buy an Investment Trust Trading at a Discount?