Rate cut could add fuel to investment trust recovery

Commenting on today’s quarter-point interest rate cut from the Bank of England, Richard Stone, Chief Executive of the Association of Investment Companies (AIC), said: “This is a modest but symbolic cut. Although the decision to cut rates was finely balanced, it signals a turning point in the rate cycle.

“With the potential for further cuts to come, this move is likely to add fuel to the recovery we are already seeing in the investment trust sector and the market more broadly. The average investment trust discount, excluding 3i, has narrowed from its nadir of 19% last October to 13%, and if today’s rate cut is the first of a series, we may see this narrow further as yields and returns will look increasingly attractive.”

Investment trust analysts have tipped sectors such as infrastructure, renewable energy and property as being particularly well placed to gain from lower interest rates (see our previous release, ‘Which sectors and trusts could benefit from lower rates?’)

Richard Stone, Chief Executive of the Association of Investment Companies (AIC), added: “Lower interest rates could see investors looking beyond fixed income and towards alternative asset classes such as infrastructure, renewable energy and property, which have the potential to pay attractive levels of income. A lower Bank of England base rate could also boost income-paying investment trusts such as our dividend heroes, which have delivered consistently rising dividends for periods of at least 20 years.”

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Notes to editors

1. The Association of Investment Companies (AIC) represents a broad range of investment trusts and VCTs, collectively known as investment companies. The AIC’s vision is for closed-ended investment companies to be understood and considered by every investor. The AIC has 329 members and the industry has total assets of approximately £277 billion.
2. For more information about the AIC and investment trusts, visit the AIC’s website.
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