Join our community of smart investors

Investment trusts that can benefit from falling rates

The mass sell-off of trust shares is over and it's time to identify the best prospects
Investment trusts that can benefit from falling ratesPublished on January 17, 2024
  • Some inflation linkage goes unrecognised
  • Growth-focused funds recover as rate cuts come into view

Latest inflation data from both sides of the Atlantic is an unwelcome reminder for investors that rapid rate cuts are not a foregone conclusion. The headline US inflation rate was 3.4 per cent in December, up from 3.1 per cent the month before. UK CPI inflation rose from 3.9 per cent to 4 per cent over the same period. These backwards steps have undone some of the progress made late last year by equities that investors see as particularly rate-sensitive, including some UK investment trusts.

The investment trust sector’s average discount was 13.2 per cent at the end of 2023. By mid-January that had moved above 15 per cent and, at the time of writing, was set to widen further as a result of Wednesday’s worse then expected UK inflation figure. While this is still an improvement on the 20 per cent average discount seen in the autumn, it does mean many trusts look cheap by historical standards. Nonetheless, interest rate cuts are still likely this year, and the task now facing investors is to identify the funds and sub-sectors poised to make a meaningful recovery in the not-too-distant future.

This is subscriber only content
Start your trial to keep reading
PRINT AND DIGITAL trial

Get 12 weeks for £12
  • Essential access to the website and app
  • Magazine delivered every week
  • Investment ideas, tools and analysis
Already a subscriber? Sign in