Whether a trust is on a discount or a premium price to its net asset value (NAV) may persuade some investors as to whether the time is right to sell or buy out-of- or in-favour investment companies. 
Yet, looking at the headline discount or premium does not give investors much information on whether this is a fair price or not.
In recent years, boards have changed their attitudes to discount control mechanisms, meaning that many trusts are trading at tighter valuations than ever before.
Indeed, Kepler Trust Intelligence research analyst Alex Paget (pictured) noted: “Boards have been more willing to buy back shares than in the past.
“Before, people wouldn’t want to shrink the size of the trust, but now there is more pressure to look ‘active’ in terms of buying back stock as it makes the trust more marketable.”
There are some anomalies that may represent good value and may also throw out some trusts that have been overbought in recent months.
“It’s interesting that many of the trusts on the widest discounts relative to their history are in the UK [All Companies sector],” Paget added.
Indeed, of the top 20 funds in all the IT equities sectors, as well as the IT Flexible Investment sector, seven trusts are in the UK with three from the IT UK All Companies sector, according to data from Kepler.
This is despite the IT UK All Companies sector average outperforming the FTSE All Share over the past year by 5.59 percentage points, as the below shows.
Performance of sector vs index over 1yr
Source: FE Analytics
However, the sector also has the widest range of trusts compared to the other UK sectors with the largest difference between the trusts on the largest and smallest premium/discount relative to its own history.
Below, FE Trustnet looks at some of the trusts with the most notable differences. In this study we have compared the current premium or discount to a trust’s 20 year average. Where a trust does not have a long enough track record we have compared it since launch.
In an upcoming article we will tackle the IT UK Equity Income and IT UK Smaller Companies sectors.
The trust on the largest discount relative to its history is the £117m Artemis Alpha Trust run by John Dodd and Adrian Paterson, as the below table shows.
List of IT UK All Companies discount/premium vs their history
Source: Kepler Trust Intelligence
Although the trust has a long history – having launched in 1998 – we have run the data to 2003 when Artemis, and Dodd, was appointed as investment manager.
Since 2003, the trust has been a third quartile performer, although it is ahead of both the FTSE All Share and sector average, as the below chart shows.
Performance of trust vs sector and benchmark since manager start
Source: FE Analytics
However, it has struggled for extended periods of time and was bottom quartile over three, five and 10-year periods.
Over 12 months, however, it has been one of the best performers, returning 32.19 per cent – third in the sector and more than double the returns of the FTSE All Share.
Yet, despite recent outperformance, the fund is on the widest discount in the sector relative to its own history.
Over the last 14 years, the fund has averaged a discount of 5.81 per cent, yet this currently stands at 20.95 per cent making it 15.14 percentage points below its historical average – the widest margin of any trust in this series.
“Artemis Alpha has not had a good run of performance by anyone’s measure,” analysts at Kepler Trust Intelligence wrote in the latest note on the trust.
“At the current discount of 21 per cent, sentiment toward the trust hasn’t been more negative – and over ten years, the shares have practically never been cheaper.
“It’s not hard to see why - the company has historically had a relatively high weighting to gas and oil, which have been very negatively impacted by the oil price fall.”
The trust has also had to recognise several write-downs in its unlisted holdings, which currently make up around 28 per cent of its NAV, the analysts added.
“Meanwhile, there have been times, when enthusiasm for the trust has led to it trading for sustained periods at a significant premium, giving it this large differential,” they wrote.
“It is hard to imagine when this situation might return, but it might be reassuring for shareholders to know that they are highly aligned with the two investment managers who together own just north of 10 per cent of the trust’s shares, and the board is taking an increasingly active approach. Indeed, the board has been buying shares back at a 19 per cent discount.”
Conversely, the trust on the largest premium to its historic average is the £73m Aurora Investment Trust, which is currently on a 0.02 per cent premium to NAV.
While this is not an exorbitant premium it is 11.23 percentage points ahead of its 20-year long-term average of an 11.21 per cent discount.
Having held the unenviable title of the worst performing UK equity trust during the final 10 years of former manager James Barstow of Mars Asset Management’s tenure, Phoenix Asset Management took over management of the trust in January 2016.
Kepler analysts noted: “The manager, Gary Channon, immediately put his stamp on the underperforming trust, bringing it in line with the group’s top-performing, open-ended Phoenix UK fund.”
Given Phoenix’s track record, demand for shares in the Aurora trust sky-rocketed and the trust has consistently traded on a premium since they took charge.
While the trust has slightly underperformed the FTSE All Share since he took over, as the below chart shows it is far ahead of the sector average over what was has been a difficult period for active managers.
Performance of trust since January 2016
Source: FE Analytics
Indeed, the trust, which is the only trust in the sector on a premium according to the data from Kepler, sits in the top quartile since the new management team has been in place.
Another fund worth noting is the Mercantile Investment Trust, which is co-managed by Martin Hudson, Anthony Lynch and Guy Anderson.
While the trust is on a relatively wide discount of 10.04 per cent, this is actually 3.41 percentage points ahead of its 13.45 per cent 20-year historical average.
“Mercantile has suffered from a persistently wide discount. The board actively use their buyback powers, and over time this has been marginally additive to shareholders – in 2014 buybacks added 0.1 per cent (or 1.3p) to NAV,” analysts at Kepler Trust Intelligence noted.
“Over the past year the board have bought back shares at an average discount of 14 per cent. At the current level of 10 per cent, this gives new investors a small degree of comfort given that the board have no explicit target.”
Conversely, the Henderson Opportunities Trust, run by James Henderson, does not use discount control methods often, which is why it can become quite wide.
The current discount of 19.98 per cent is 4.67 percentage points above its average since launch of 15.31 per cent – easily the largest of the funds in the table.
Kepler’s analysts noted: “James and the board are investment trust purists and have made it clear that they do not view artificial discount controls as a good idea, with the board having only bought shares back once before, in 2011, when the discount was as wide as 30 per cent.
“As such, given its relatively small stature and investment mandate, discount volatility has been a perennial issue for shareholders.
“The discount has swung around over recent years, having traded at a slight premium in 2014, but widening to as far as 20 per cent after the EU referendum and once again in October last year.
“The current discount, at the time of writing, is wide compared to its history at 18 per cent - but it would be naive to suggest this means it will narrow over the short-term.”