For much of the past decade, investors could afford to rely primarily on asset selection, confident that supportive liquidity, falling interest rates and stable markets would do much of the heavy lifting.
That environment has changed. Today, markets are volatile and valuations are at historical extremes. On a forward price-to-earnings measure, the expected return over the next decade from the S&P 500 is roughly 0%.
When prospective returns look this poor, institutional investors seeking to outperform the market should be working harder to scrutinise how capital is allocated, how risks are managed, and how governance frameworks respond under pressure.
For the investment trust sector, persistent discounts have sharpened expectations of this accountability; governance that once centred on explanation and reassurance is increasingly judged by outcomes.
Retail investors can profit by monitoring companies that are adjusting their capital allocation stance in response to shareholder concerns.
Indeed, our portfolio has seen an improved responsiveness from boards to our corporate engagement. We have worked actively on behalf of our shareholders to enhance and protect value. This has led to constructive outcomes across a number of our largest holdings.
Conviction: BlackRock Energy & Resources Income (Discount:8%)
Over the past 12 months we have built a position in the trust as its largest institutional shareholder. Through constructive conversations with the board over the year, alongside strong net asset value (NAV) performance, the discount narrowed from double digits to under 2%. This has realised returns in excess of 50% for our shareholders on one of the largest investment trust positions in the portfolio.
While energy and mining are inherently cyclical industries where sentiment can change rapidly, this investment highlights that when discount compression is accompanied by improved sentiment it can materially enhance returns over and above the performance of the underlying assets.
For investors seeking exposure to this sector, we would continue to monitor the discount closely for opportunities in a trust where we believe governance has improved.
Conviction: HICL Infrastructure (Discount: 24%)
In November 2025, HICL announced its intention to launch a £5.3bn merger with The Renewable Infrastructure Group. We believed the transaction was strategically flawed and value-destructive for HICL shareholder, one of the largest holdings in our portfolio. We had actively avoided investing in TRIG given market conditions in renewables.
After private discussions failed to progress and given the tight timelines under which the deal was announced, we led a public campaign organising shareholders against the transaction.
Given the rarity of announced deals being abandoned, we were pleased that we were able to secure a constructive outcome for shareholders.
We do believe HICL’s portfolio of roads, schools, and critical infrastructure assets can deliver reliable and attractive risk-adjusted returns north of 9% per annum.
Our conviction is underpinned by strong visibility of cashflows from predominantly inflation-linked, government-backed contracts that are difficult to renegotiate; asset valuations that appear more credible than those in the listed renewables sector; and following our recent engagement with the company, we think better governance will emerge and capital allocation will remain disciplined.
Caution: Listed private equity
We remain cautious on the listed private equity sector. For us, three conditions must be met for the sector to be attractive: earnings growth is sufficient to support valuations; policies are explicit in returning capital in response to discounts against manageable future commitments; and there is meaningful realisation activity to validate NAVs and enable these policies to work
At present, the third condition remains unproven. Discounts have narrowed in anticipation of exits, yet despite global mergers and acquisitions (M&A) experiencing one of its strongest years on record, realisation follow-through has been disappointing, particularly relative to upcoming commitments. Until realisations consistently support valuations, we believe caution remains warranted.
The key word in ‘investment trust’, is ‘trust’. That trust is built through disciplined capital allocation, credible valuations and governance that responds when challenged.
Our convictions reflect where these elements are present and our caution reflects where they are not. As the sector continues to adapt, we believe investors who focus on outcomes rather than promises will be best placed to identify durable sources of long-term value.
Our aim remains to work collaboratively to help the investment trust sector not just adapt but thrive.
Hassan Raza is a portfolio manager at CG Asset Management. The views expressed above should not be taken as investment advice.