Investment trusts making a comeback?

In the ever-changing landscape of the financial market, alternative-income investment trusts are facing challenges due to rising costs of borrowing and equity capital. This situation, in turn, has caused concern for sectors such as infrastructure, renewable energy, and property.

Despite lower interest rates potentially offering a glimmer of hope for these sectors, there's no guarantee they will return to the levels at which these trusts previously thrived. For instance, trusts like HICL Infrastructure, International Public Partnerships, Renewables Infrastructure Group, JLEN Environmental Assets, and Supermarket Income REIT continue to trade at mid-teens discounts, despite dividend yields of around 8%.

On a positive note, activity in the private equity and venture capital markets is showing signs of recovery, causing discounts in these sectors to narrow. The HgCapital Trust, for example, has shifted from trading at a discount to selling for a premium.

In contrast, the infrastructure and property sectors have been hit hard, with limited activity making it difficult to determine asset values accurately. This situation is particularly evident in the UK, where trusts such as Mercantile Investment Trust and Fidelity Special Values have seen their discounts fall significantly. Edinburgh Worldwide, with its large allocation to SpaceX, has seen its discount shrink from 21% to 8% over the past year.

However, the UK's largest investment trust aside from 3i, Scottish Mortgage Investment Trust, has seen its discount to net asset value (NAV) decline from around 20% this time last year to just 10% today.

The Schiehallion Fund has also shown improvement, moving from a discount of 40% to 11%. Yet, central banks keeping rates higher for longer could lead to further uncertainty in these markets.

Navigating these markets requires caution. Double-digit discounts and 8% yields in these trusts might seem attractive, but investors should consider whether these trusts will ever return to their former glory.

Specific information on investment trusts in infrastructure, renewable energy, and real estate sectors that currently show significant discounts to their net asset value (NAV) in Germany is not readily available. However, the 2025 market environment is marked by volatility and inflation risks, which has increased the relevance of Real Estate Investment Trusts (REITs) and real assets in general. For detailed, up-to-date listings of such trusts and their discount rates, specialized financial reports or market-specific newsletters such as those from BVAI (Bundesverband Alternative Investments) are recommended sources to consult.