Why are ITs at such big discounts?

[Lootman]

I agree with ScrumpyJack that buybacks for investment trusts trading at a substantial discount e.g. 10%+ can only be good news for long-term shareholders.

Unfortunately that's not always the case as the following illustrates:
I bought VSL a couple of years ago at a price about 92 and yield around 10%. I bought as a long-term investment and was quite relaxed about seeing the price decline as interest rates began to rise. I assumed that as interest rates peaked and eventually eased somewhat then the price of VSL would improve. As a short duration portfolio, VSL also had an opportunity to lock in some higher yielding investments
Fastforward to this year and the VSL fund managers are now liquidating the whole portfolio and repaying investors. The VSL NAV is currently about 92, roughly what I paid. If they managed to sell instantly without costs then in theory I might come close to getting back what I paid. However, the process is likely to take a few years, during which time the market might change and the liquidity of VSL will decline and probably disappear altogether. I will also lose a 10% yielding IT that I will want to replace.
I also have another IT that is doing the same thing and I will probably lose out on that one as well.

So not always a good thing. Buyer beware.

I think the TLF name you have chosen for yourself might be a factor here?

https://www.fool.com/terms/p/pigs-get-slaughtered/

[yieldhog]

Lootman,

My TLF name does probably have the right connotation although I like to think of my investment style more as calculated risk.
VSL may turn out to be a case in point. If I get out of this liquidation at around NAV then it will have been a worthwhile SIPP investment after taking account of the 10% or so dividend. To keep things in perspective, VSL represents about 3% of my SIPP portfolio and I do not have any more in my other portfolios.

My yield focussed approach has served me well in the 15-years or so time that I have been in SIPP drawdown. My SIPP dividend return has reached record levels for the last two years and has always healthily exceeded my drawdown payments. The fund is also at record highs. I certainly have not yet been slaughtered and there's very little risk of that.

I posted my 2023 portfolio on TLF and some preliminary results for the year. Dividend return was 6.8%,
realized capital gains 2.2%, unrealized YTD portfolio value is minus 3.7%, total return around 5.3%. Maybe not quite keeping up with inflation this year but I'm happy enough with that.

My circumstances are changing and the SIPP portfolio is changing with them, so I will be making some changes in the next few months. I will post the updated 2024 portfolio in the New Year.

Thanks for the link but don't forget the markets are always driven by fear and greed.

Happy hunting.

Y