NAV Discounts and Premiums · Investment Trusts

A large discount is a question to investigate. It may reflect opportunity, persistent costs, difficult assets or a market judgment that the published valuation is too optimistic.

Ask what the discount compensates for

Imagine two trusts each reported at a 25% discount. One holds frequently traded shares with transparent valuations. The other owns private projects with uncertain sale values and future funding needs. The identical percentage does not establish identical value.

Write the possible explanations before choosing a preferred one. These might include manager concerns, borrowing, expensive operations, poor shareholder demand, stale valuations or a concentrated shareholder register. Several explanations can operate at once.

Test a revised asset value

A company reports NAV of 200p and trades at 150p. If a cautious assessment reduces asset value attributable to each share to 170p, the discount to that adjusted value is about 11.76%, not 25%. The adjustment is your scenario and must not be presented as the official NAV.

Consider costs and time as well. Realizing value through asset sales may require expenses, taxes at relevant levels, debt repayment and a lengthy process. A liquidation calculation that ignores these cash claims can overstate what shareholders might receive.

Identify an evidence based route

Possible developments include improved performance, clearer disclosures or a specific capital action. An announced proposal with terms is different from a hope that the board will act. A discount can remain wide for years.

Compare the trust with alternatives offering similar exposure. The right question is whether its expected benefits justify its risks and costs under a defensible range of outcomes, not whether its discount ranks first on a screen.

Try it yourself

A price is 120p against reported NAV of 160p. Your cautious scenario uses 140p. What are the two discount measures?

Show the worked answer

The reported discount is 25%. The discount to your scenario value is about 14.29%. Label the scenario clearly and do not substitute it for the official figure.

Further reading

Educational material, not a recommendation to buy or sell a fund. Numerical examples are hypothetical. This guide focuses on listed investment companies commonly called investment trusts in the UK. Product terms, access and tax treatment vary by jurisdiction.

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