Investing in undervalued alternative trusts currently presents an affordable opportunity. Worth considering, isn't it?
Investing in closed-ended trusts can be a smart move for various reasons, but their closed nature is particularly valuable. Unlike open-ended funds, these trusts don't need to buy and sell assets based on investor demand, allowing them to adopt a long-term view and handle illiquid or hard-to-sell assets. This has contributed to the growth of the alternatives market, which offers private investors access to a diverse range of investments such as private equity, infrastructure, hedge funds, and specialist debt.
However, over the past five years, many alternative funds have struggled. Regulatory complications, a shift away from smaller trusts, and a lack of interest in the UK market have led valuations to plummet. Infrastructure trusts, for example, trade at an average discount of 24.2%, despite offering a 4.6% average yield. Renewable infrastructure trusts have an even wider discount, while infrastructure debt funds and private equity funds-of-funds face similar challenges, trading at an average discount of 22.5% and 34.5% respectively.
One concern is the accuracy of Net Asset Values (NAVs) in these sectors. Unlike equity-focused trusts, the NAVs of alternatives are relatively stable. However, it remains unclear whether these reported NAVs reflect reality. Recent deals in the sector, such as BBGI Global Infrastructure's acquisition, offer some validation of NAVs, but it's still uncertain if this trend will continue.
In real estate, the perceived value gap is even more evident, with several deals announced this year demonstrating a significant disparity between price and reported NAV. As the market becomes more aware of these discrepancies, UK real estate investment trusts (Reits) have seen strong performance. Despite trading at a double-digit discount on average, Reits offer high single-digit yields, making them an attractive addition to a portfolio.
However, this opportunity may not last. As more alternative funds get bought out or trade at higher valuations, investors should consider adding exposure now. While market sentiment and other factors will continue to influence the discounts in these sectors, the potential for growth remains appealing, especially given the current interest rate environment. Subscribe to our website today to stay updated on the latest investment and personal finance news, market analysis, and money-saving tips.
- Despite facing challenges in valuations and questions about the accuracy of Net Asset Values (NAVs), the real estate sector, particularly UK real estate investment trusts (Reits), has seen strong performance due to a perceived value gap, offering high single-digit yields, making them an appealing addition to a portfolio.
- In contrast to the struggles many alternative funds have experienced over the past five years, investment trusts that focus on real estate, such as Reits, have maintained their attractiveness, especially considering the current interest rate environment.
- To make informed decisions about investing in various sectors, including real-estate, one should subscribe to our website today to stay updated on the latest investment and personal finance news, market analysis, and money-saving tips, including insights on investment trusts and the potential for growth in different sectors.
