Four investment trust sectors trading cheaply

By Chris Salih on 13 May 2026 in Investment Trusts

Changing investor behaviour, higher interest rates and issues over cost disclosure rules have all put pressure on the investment trust market in recent years – with private equity and activist investors taking advantage of opportunities in the sector during this challenging period.

The result of these pressures is that the average investment trust has been trading at a double-digit discount for the longest period in approximately three decades. Discounts across the investment trust market currently stand at 11.1%*. This has actually narrowed recently as we saw rates fall back slightly, while M&A activity and buybacks increased more broadly across the market.

Why discounts have widened

Investment trusts issue shares on the stock market that provide exposure to the underlying portfolio of assets they own; that’s a different set-up to other types of collective fund, where investors get their exposure through units that can only be traded with the manager. The price of an investment trust’s shares is determined by demand and supply in the market and sometimes that gets out of sync with what’s happening in the portfolio.

But there is also a double discount opportunity for investors within certain parts of the investment trust market. This occurs not only when an investment trust’s shares are trading below NAV, but also when the trust itself owns assets that are also valued cheaply. For example, a trust could be on a 15% discount to NAV, but some of the underlying holdings may themselves be depressed or undervalued.

It should be noted that this is not a guaranteed recipe for success – discounts can stay wide for years and underlying assets may deserve their lower valuations. There are also other sectors where illiquid or private assets may be hard to value accurately.

With this in mind, here are a few sectors where investors might find attractive double discount opportunities:

Property

Property has been arguably the most challenged sector in the past couple of months or so of uncertainty as the change in interest rate expectations, high bond yields and concerns over economic growth hit sentiment hard. ISFL Wise Multi-Asset Income manager Philip Matthew says he has been looking to upgrade his property positions into higher-quality players, who can take advantage of the valuation upside, but with minimal downside impact. Examples include the addition of British Land and the TR Property Trust (which has the double discount of both its underlying asset falling and its own discount).

Speaking in a recent podcast with FundCalibre, BNY Mellon Multi-Asset Income manager Paul Flood says they have been increasing their property allocation, citing high-quality offices in places like Australia (Dexus Global REIT) as an example.

Global smaller companies

Small-caps and large-caps go through long cycles of outperformance, with the average cycle lasting about 12 years. With large-caps having outperformed for the past 14 years, history suggests a reversal may follow.

Research from Columbia Threadneedle suggests these cycles tend to turn well when small-cap valuation discounts reach extremes relative to large-caps. This has occurred when the relative small-cap P/E ratios are around one standard deviation below their long-term average – this is where the market currently stands**. Their research shows that on the two previous occasions when this happened in the US stock market, a long period of small-cap outperformance followed.

A good option here is the Global Smaller Companies Trust, which looks to strike a balance by tapping into the faster growth of smaller companies (developed and emerging markets) but with lower risk. To do this, Nish Patel and the team use a bottom-up, style-agnostic approach to target companies with strong franchises and good quality; motivated management teams; and where share prices do not look expensive. By contrast, they try to avoid speculative stocks where the team do not have conviction in what the business looks like in the future. The trust is currently on a 4.8% discount*.

Emerging markets

Emerging market stocks outperformed developed markets in 2025 — 34% to 21% — yet figures from MSCI show emerging market valuations near their lowest point relative to developed markets in over 20 years***. Valuations remain compelling: emerging market equities trade at a forward P/E of just 14x for 2026, historically cheap and under-owned****. There are plenty of reasons for optimism such as attractive demographics, cyclical & AI tailwinds and greater optimism on China.

This is an area of the market where active management matters more than most – India remains relatively expensive – while the likes of Taiwan and South Korea became pricier because of AI/semiconductor exposure. By contrast, markets like Indonesia, Philippines, Mexico and parts of Latin America remain much cheaper relative to their own histories.

Investment trusts worth considering here include Templeton Emerging Markets Investment Trust and the JPMorgan Emerging Markets Growth & Income Trust, both of which focus on quality franchises in the space and are on discounts of 9% and 7.4% respectively*.

Healthcare and biotechnology

Biotechnology and healthcare stocks are generally considered to be at attractive, undervalued, or “reset” valuations compared to the broader market and their own historical averages. After underperforming during the AI-led boom of 2023–2025, the sector is viewed by analysts as having compelling entry points for investors seeking growth and defensive characteristics, particularly due to highinterest rates in previous years compressing valuations.

Polar Capital Global Healthcare Trust manager James Douglas says he is becoming increasingly optimistic on the market – citing improved earnings, renewed flows and continued innovation beginning to support the sector. The trust is currently on a 4% discount*.

Biotechnology went through a brutal de-rating between 2021-24, as higher interest rates hurt long-duration growth assets, IPO markets shut down, funding dried up for early-stage firms and investors began to focus on mega-cap technology. However, there remains structural support for the sector, particularly as around $300 billion of drug revenue faces patent expiry over the next few years – large pharmaceutical businesses need external pipelines (biotechnology firms) to tackle this, hence an uptick in M&A. Sentiment is still a bit cautious, but the market remains cheap.

Those looking for exposure through a multi-asset fund might consider the likes of ISFL Wise Multi-Asset Growth fund, which invests in both the Worldwide Healthcare Trust and the International Biotechnology Trust^^.

*Source: AIC, 6 May 2026
**Source: Columbia Threadneedle, 14 April 2026
***Source: MSCI, 9 March 2026
****Source: GAM, December 2025
^Source: Polar Capital, 20 March 2026
^^Source: fund factsheet, 31 March 2026