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30 Jan 2023

Annual Investment Trust Review of 2022

Annual Reports

The Only Way Is Up...

2022 was a very challenging year for investment trusts, with a return of -16.6% for the FTSE All Share Closed End Investments Index, representing the worst calendar year performance since 2008. In addition, the sector lagged the wider UK market for the second year in a row, with the FTSE All Share Index returning +0.3%. The resulting difference of -16.9% was the highest level of relative underperformance on record. One key driver of this underperformance was the widening of discounts, with the investment trust sector average discount widening from 2.5% to 13.3% in 2022. We attribute this to negative investor sentiment in an uncertain macroeconomic environment and fears around liquidity.

While investor caution undoubtedly remains and the macroeconomic outlook is far from rosy, we believe that the sell-off last year has led to attractive opportunities. Many investment trusts are trading at notably wider discounts than their long-term averages, particularly interest rate or duration-sensitive asset classes such as Property, Private Equity and Infrastructure. While the NAVs of many of these funds may see further declines in the near term, we think that the dramatic de-rating in recent months presents an exciting entry point for long-term investors.