Re: Why are ITs at such big discounts?
Posted: October 25th, 2023, 7:07 pm
yieldhog wrote:LooseCannon101 wrote: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/