18 sectors saw discounts to nav widen over first few months of 2003 despite significant buyback activity with uk small caps one of worst hit
Substantial buyback activity in the first few months of 2003 has failed to narrow discounts to NAV in the six months to the end of April.
AITC statistics show while 18 investment trust sectors saw some tightening in their discounts over the period, another 18 experienced widening in their discount to NAV.
The small-cap peer groups were among the key sectors in which widening occured, while tightening was centred on income-focused sectors.
In the Global Growth sector, the average weighted discount widened from 10.8% on 4 October 2002 to 11.7% on 30 April this year, still down from the 17.5% high of the past 12 months.
This came despite a narrowing in the discount of Alliance, one of the largest trusts in the sector at £1.2bn, whose discount fell to 7.4% from 12.3% over the six-month period.
HSBC investment trust analyst Paul Locke said discounts have failed to narrow further across the board as investor risk aversion continues to dog investment trusts.
'There has been discount tightening on some individual trusts but nothing in terms of positive sector moves,' he said.
The UK Small Cap peer group was one of the worst hit, with a weighted average discount of 18.3% on 30 April. This was up from 17.4% six months earlier and not far below the 12-month high of 22.8% as the sector remained out of favour.
'Among UK small caps, most trusts have bought in 3%-4% over the past 18 months but that is about it.' Locke said. 'It wasn't really worthwhile doing it because they would have been sailing into the wind.
'If there is no end demand for the shares, there is no point carrying on buying back stock because the discount will not improve until overall demand rises in the secondary market.'
The UK Income Growth sector had one of the smallest average weighted discounts over the six-month timeframe, at 5.4%, despite widening from 3.8% at the start of the period.
Locke said the strength of the share price relative to NAV was due to a comparatively high proportion of retail ownership among trusts in the sector, as well as decent yield distributions that make them sought after in the current market.
The average discount on Global Income trusts also narrowed over the period, from 18.3% to 12.2%, while the High Income sector's average discount fell from 11% to 1.3%.
While Far East ex-Japan was well-loved for a period, the sector average discount has widened in recent weeks because of investor concern over the Sars virus, according to Locke. The discount was 13.2% on 30 April, down from 13.9% six months earlier.
'Anything with a slight edge of risk in it, such as private equity, is finding it hard to narrow a discount as there is complete risk aversion in the market,' Locke said.
As evidence of this, Latin America is still relatively unloved despite being one of the best performers in terms of NAV over the past three to six months. The discount on the sector was 19.9% on 30 April, marginally down from 20.2% six months earlier.
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