Alternative Investment Trusts: A Value Opportunity Hiding in Plain Sight

In a market where traditional equity valuations remain elevated, alternative investment trusts are quietly offering some of the most compelling value opportunities available today. These vehicles ranging from infrastructure and renewables to private equity and specialist debt are trading at substantial discounts to their net asset values (NAV), despite offering strong income potential and exposure to high-quality, long-term assets.

According to data from Panmure Liberum, infrastructure trusts are currently trading at an average discount of 24.2%, with yields averaging 4.6%. The renewables segment is even more striking, with discounts averaging 34.5% and yields reaching 8.6%. Similarly, infrastructure-debt funds yield over 9% at a 22.5% discount, while private equity funds-of-funds are also trading at deep discounts above 30%.

While some investors remain cautious about the validity of NAVs in these trusts given that the underlying assets are not marked-to-market daily, recent takeover activity offers a vote of confidence. BBGI Global Infrastructure was acquired at a 3.4% premium to its NAV, while recent bids for Empiric Student and Assura have significantly exceeded their trading prices, though not always their full NAV. These transactions suggest that many trusts are undervalued by the market, and that strategic buyers recognize their intrinsic worth.

The UK real estate investment trust (REIT) sector has already started to reflect this shift. It has delivered some of the best returns among investment trusts over the past year, yet many REITs continue to trade at double-digit discounts and offer high single-digit yields. This indicates a broader disconnect between market pricing and asset value that could soon correct as confidence returns and interest rates decline.

While it would be unwise to base an investment decision solely on the expectation of a takeover, the combination of discounted valuations, high income, and the potential for re-rating makes alternative trusts an attractive proposition for long-term, income-focused investors. These funds provide access to assets that are often inaccessible to retail investors and may play an important role in a diversified portfolio.

With acquisition activity picking up and valuations likely to normalize, the current pricing mismatch may not persist. For investors seeking value in today’s market, alternative trusts represent a rare opportunity to buy quality assets at a discount before the rest of the market catches on.