- Granular choices and recession risk.
- Look for margins of safety.
As central banks begin to pivot towards dovish monetary policy, investment trusts could start to see their discounts close as money flows back to the stock market. There is a delicate balancing act, however. One of the reasons policy makers are prepared to cut rates is because they are beginning to fear recessionary pressures more than inflation. Trusts focussed on areas which have reasons to be optimistic for an improvement in business fundamentals may be a good place to look for market-beating returns.
Our regular investment trust screen uses a methodology that has a good long-run track record, but has been atrocious at picking sustainable winners over the past couple of years. Primarily a momentum system, it operates by flagging trusts with positive recent share price momentum, but that have discounts to net asset value (NAV) which are cheap relative to recent history. In good times, this meant the trust share prices that lagged the NAV per share of portfolios effectively offered a catch-up premium.
