Data from the Association of Investment Companies (AIC) using Morningstar shows that the investment company industry closed 2013 at a 3.4% average discount, its lowest since records began in December 1970. The industry has at times come close to this record low, as in February 2006 when the average investment company discount was 3.5%.
Ian Sayers, Director General, Association of Investment Companies (AIC) said: “The average investment company discount is at its lowest since records began, demonstrating the current strong demand for investment companies.
“A strong period of performance, the dividend track record, access to specialist asset classes and the impact of RDR have all come together to boost interest in investment companies.
“Of course it’s important to be aware that whilst the average discount is at a record low, discounts vary across the industry. Investors need to have a balanced portfolio and research potential investments thoroughly.”
A brief history of investment company discounts
• October 1976 – Average discount peaked at 41.5%
• Late 1980s/ early 1990s – demand increased due to savings schemes, PEPS, promotional activity etc
• January 1994 – lowest average discount narrowed to 4% but demand did not keep up with new launches – by April 1996 the average discount was at 10%
• 1999 – investment companies able to buy back shares to help control the discount
• 2003 – investment companies able to hold shares ‘in treasury’, for potential reissue at a later date, a further tool to help control the discount
• From November 2004 – August 2008, the average investment company discount regularly traded in the low single digits
During the credit crunch, the average discount widened out to 16.6% at December 2008 – the highest since the 1980s, before returning to single digits since October 2010