Changes to the way calculations of net asset values are performed by the Association of Investment Trust Companies (AITC) are expected to reduced share price to net asset value discounts by an average of 1%, the Association says.
The changes mean the AITC will incorporate into its calculations “fair value”, or current market price of debt, rather than the final repayment value, or “redemption” value.
Along with the technical changes, the Association is encouraging members and non-members alike to adopt the standards in order to “ensure consistency and comparability in regularly published data”.
With professional advisers and institutions already allowing for fair value calculations, it makes sense to extend the practice to enable private investors to take a similar view with regard to debt.
Fair value is already published in most annual reports, but publishing the data on a monthly basis along with NAV figures makes more sense, the Association adds.
Because the different level of debt recorded will decrease the net asset value of funds, it will narrow discounts on average between 1% to 1.5%, according to AITC calculations.
Investors should not base their decision to invest in any particular fund solely on a narrowing of a discount, the AITC warns.
Factors such as fund objectives, underlying holdings, gearing levels, past performance and charges should all be understood before making an investment, the Association adds.IFAonline
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