Should You Buy an Investment Trust Trading at a Discount?

Key Takeaways

• Most UK investment trusts trade at a discount to their net asset value.
• Investors should investigate if a discount is driven by sentiment only or structural issues before buying.
• Trusts trading at a premium could reflect skillful management.

Investment trusts are popular vehicles among UK investors, offering access to various sectors and themes with the same ease as buying an exchange-traded stock.

Investors looking for a bargain also like investment trusts because they in many cases trade below their fair value, at a discount. But a discount does not necessarily mean the trust is a great purchase.

These are some of the things to be aware of when looking at investment trust prices.

What Are Investment Trust Premiums and Discounts?

Investment trusts are closed-end fund companies whose shares trade on a stock exchange, priced in real time. This means investors have a liquid way to access various investment themes, including more illiquid asset classes like private equity and niche sectors such as airline leasing.

This also means trusts have two different return figures: the movements in the traded share price, and the movements in the net asset value. The NAV divides assets minus liabilities by the number of shares in issue.

In the world of investment trusts, price reflects not just value, but also investor sentiment, according to Henry Ince, a fund analyst at Morningstar.

Ince says: “‘Buy low, sell high’ is a familiar mantra, but investment trusts trading at a premium challenge that logic. Why would investors pay more than the underlying assets are worth?”

A discount on an investment trust is best understood as the gap between the share price and the net asset value (NAV) per share, AJ Bell’s head of markets Dan Coatsworth explains. For example, a trust with 100p of assets per share, and a 95p share price, trades at a 5% discount.

Currently, around 200 of the 240 UK investment trusts trade at a discount to NAV. Discounts among trusts rated by Morningstar range from a 12.16% discount for BlackRock Smaller Companies BRSC, to a 1.79% premium for City of London CTY.

“Discounts can give savvy investors the chance to buy assets for less than they are worth, at least in theory, but in practice it is important to do some digging and understand why a discount exists,” Coatsworth says.

Should I Buy an Investment Trust at a Discount?

Investors should look for trusts where negative sentiment, rather than poor fundamentals, drives the discount, according to Henry Ince, fund analyst at Morningstar.

Yet, persistent discounts can also indicate structural or management concerns that warrant caution. Ince says: “The key is to understand the drivers behind a trust’s premium or discount. Investors should look beyond the headline figure and rigorously assess whether sentiment or substance is at play before investing.”

Other reasons could include low demand because of poor performance, the investment style being out of favor, or the trust having a low profile. And trusts investing in unlisted assets often trade at discounts because of the uncertainty around valuing the assets and the difficulty in selling them on. Narrowing the discount in these cases might not be easy AJ Bell’s Coatsworth says—but not all investors are waiting for a reversal.

“The level of discount at which you buy can affect the return you get as a shareholder and how much discounts matter really depends on your time horizon. Short-term traders may invest at deep discounts in the hope they narrow quickly, whereas long-term investors tend to be less fixated on the gap between share price and NAV,” he says.

Trusts have measures they can take to narrow the discount or premium and reduce volatility. Some trusts buy back shares when trading at a premium to reduce the supply, and issue new shares when trading at a premium. And others deploy “discount control mechanisms” to narrow the gap between share price and NAV. But investor behavior can still cause significant deviation beyond what trusts can control, Ince says.

Should I Buy an Investment Trust at a Premium?

There are many reasons why a fund would trade at a premium: it signals market confidence in the investment trust and its management, it has a robust performance record, or potentially the trust offers access to a sought-after niche. Currently, only one investment trust rated by Morningstar trades at a premium: City of London CTY at 1.79%.

Ince says: “Premiums are volatile. When sentiment shifts, premiums can evaporate quickly, eroding returns.”

A recent look at 3i Group III, the UK’s biggest investment trust, revealed that the private equity-heavy vehicle trades at a 50% premium to the underlying portfolio. Investors like Bank of America, meanwhile, believe the trust is undervalued, and recently reiterated its buy rating, despite the premium.

Trust at a Discount: JPMorgan Global Growth & Income JGGI

Key Morningstar Metrics

• Morningstar Category: Global Large-Cap Blend Equity
• Ongoing Charge: 0.39%
• Premium/Discount: -3.17%

JPMorgan Global Growth & Income JGGI is one trust currently trading at a discount of 3.17%, as of Oct. 27, that Morningstar’s manager research team likes. The investment trust has a Morningstar Medalist Rating of Silver, and with assets of £3.4 billion it is approaching FTSE 100 status.

Its current prominence is the result of a strategic overhaul in 2016, when the trust was renamed from JPM Overseas Investment Trust and adopted a new distribution policy: returning 4% of NAV to shareholders annually via quarterly dividends. It attracts income-seeking investors while allowing the portfolio managers to invest in growth stocks that may not pay dividends, supporting both income and capital growth objectives. JGGI also benefits from J.P. Morgan’s extensive global research platform. Its disciplined, repeatable investment process is a key strength.

Ince says: “The shift proved transformative. At the time, the trust’s assets stood at around £320 million and it traded at a notable discount. Since then, strong investment performance, a series of mergers, and disciplined management have driven significant asset growth and narrowed the discount. Greater scale has also helped keep costs competitive.”

“Recent performance has lagged, and the trust now trades at a discount of 4.01% (as of Oct. 21, 2025). However, the board’s active share buyback program aims to keep the average discount near 5% or less: the 10-year monthly average stands at -0.56%. For investors, this disciplined approach to discount management provides reassurance that further widening is unlikely.”

Trust at a Premium: City of London Investment Trust CTY

Key Morningstar Metrics

• Morningstar Category: UK Equity Income
• Ongoing Charge: 0.36%
• Premium/Discount: 1.79%

Gold-rated City of London Investment Trust CTY, managed by Job Curtis since 1991, stands out among UK equity income trusts, currently trading at a modest premium of 1.79% (as of Oct. 27). It is the only one of the five trusts in the Morningstar Category UK Equity Income that is trading at a premium, underscoring City of London’s appeal.

Ince says: “Curtis’s long tenure is a rarity in the industry and has contributed to the trust’s exceptional track record. City of London has increased its dividend every year since 1966—an unmatched 59-year streak that remains highly attractive to income-focused investors. The portfolio’s emphasis on well-managed, dividend-committed companies has delivered robust performance over both the short and long term.

“The board’s disciplined approach to managing the trust’s premium and discount—issuing shares at a premium and buying back at a discount—has kept the share price closely aligned with net asset value. This reduces the risk of significant disconnects between share price and NAV, providing investors with greater confidence and predictability when exiting their positions.”