I love a bargain. Whether it’s a designer trenchcoat on sale at Bicester Village or an appealing investment trust trading at a handsome discount, I like saving money at the point of purchase – knowing that there is extra value baked into the price I have paid.
That is why my portfolio is full of investment trusts snapped up when they were trading at a healthy discount to their net asset value (NAV). I especially like the prospect of the double whammy boost you get from a narrowing discount and rising share price when the trust’s NAV performance picks up.
But recent events have irked my bargain-hunting instincts. Watching Seraphim Space Investment Trust rocket from a discount to NAV of nearly 30% 12 months ago to a premium of 63% today, delivering shareholders a total return of a staggering 342%, has left me feeling a bit green at the gills.
Crucially, much of that growth has come while it was trading at a premium. As recently as mid-January, shares were trading at a premium of 20% above its NAV. But investors continued to pile in, reassured by yet another NAV upgrade and feverish excitement around the nascent space tech industry. The demand pushed the premium out even further, to where it now sits at around 60%.
A growing number of trusts on premiums
As a passionate advocate for investment trusts, I am of course delighted that Seraphim Space is demonstrating why the closed-ended structure and its capacity to invest in unquoted assets can be so valuable. A substantial premium didn’t dampen demand for this trust.
But it’s not just Seraphim. In the first quarter of this year, we saw more trusts trading at a premium than at any time since 2023. Average discounts have come in from 13% at the start of the year to 11% today, while numerous trusts have been busy issuing new shares.
According to Winterflood, over the first four months of 2026, £524m was raised across the investment trust sector, compared with £219m in the equivalent period in 2025, reflecting a rise of 140%. Scottish Mortgage issued shares in April and May for the first time in five years, while City of London issued 175,000 ordinary shares in April to meet demand. And there’s Seraphim, of course, which issued £136.5m of C-shares this month.
However, this increased demand and more positive sentiment mean that the quandary of whether to buy a trust trading at a premium is presenting itself again.
Questions to ask and premiums worth paying
Most premiums are more modest than the 60% or so premium on Seraphim Space; typically trusts trade at a 1% to 5% premium. But is that a price worth paying?
To start, say the experts, look at the fundamentals of the trust, the NAV performance in recent years and the level of the premium. Anything too sharp in any direction may be a red flag.
Jason Hollands, managing director at Bestinvest, said: “I prefer bagging trusts trading at discounts but for a genuinely high-quality trust, paying a 1-2% premium for an investment you intend to hold over the long term certainly wouldn’t put me off.”
Hollands favourite trusts that still look good value despite a premium include Temple Bar: “It remains one of my preferred value-oriented strategies and has delivered excellent returns for shareholders under the stewardship of Nick Purves and Ian Lance at Redwheel.
“It currently trades on a premium of around 1%, but investors can take comfort from the fact that the underlying holdings have themselves been selected because the managers believe they are trading materially below intrinsic value.”
“A similar argument could be made for Fidelity Special Values, a contrarian UK-focused trust, which is trading at about a 1% premium.”
Finally, Hollands says he’d still buy Scottish Mortgage. He said: “The trust has undertaken an active share buyback programme to address its previous discount, but the current rating likely also reflects investor enthusiasm around its largest holding – Elon Musk’s SpaceX, which represents around 19% of the portfolio. For many investors, Scottish Mortgage offers one of the few practical routes to gain indirect exposure to SpaceX ahead of a mooted blockbuster IPO potentially later this year.”
Philippa Maffioli, senior advisor at Blyth-Richmond Investment Managers, is not averse to a small premium but with important caveats. She advises investors to study the premium or discount to see whether it’s wildly out of line with its historic average.
She said: “The main red flags are a premium that has appeared very quickly, a premium well above the trust’s own history, high share-price volatility, and weak liquidity. I would also be wary where the premium seems driven by fashion rather than fundamentals.
“But there are some trusts on modest premiums that I would still consider for clients. Scottish Mortgage offers distinctive global growth exposure and a genuinely differentiated portfolio. Law Debenture appeals because it combines an equity portfolio with its independent professional services business, which gives it a different return profile. Temple Bar offers disciplined UK value exposure and a useful income yield. City of London remains a strong option for clients seeking UK equity income.”
Dan Boardman-Weston, executive officer at BRI Wealth Management, says investors should look closely at NAV performance over the previous few years, and consider whether anything fundamental has changed which could throw it off course.
On that basis, Boardman-Weston says he’d still happily buy Scottish Mortgage. And he likes Schiehallion Fund, which is on a 4.5% premium, due to its exposure to SpaceX and a host of other blockbuster private companies such as Bytedance, Anthropic and Stripe.
He said: “It can be worth paying a premium to get exposure to quality companies that you can’t buy elsewhere. Which is why I think we’ll see other quality trusts in the growth capital sector see a turnaround in their fortunes at some stage – they hold some great companies.”
Remember, however, that premiums can unwind quickly if circumstances change, so once a premium rises above 5% or so, and definitely more than 10%, caution is warranted.
As Hollands rightly pointed out: “If a trust sustains a premium of more than 10% for a prolonged period, boards should seriously consider issuing new shares as this shows demand is there, with Seraphim being one such example. In those circumstances, even if investors like the strategy, it may make more sense to wait for an opportunity to participate through a new share issuance rather than paying an excessive premium in the secondary market.”
| Trust | Premium |
| Scottish Mortgage | 4% |
| Schiehallion | 5% |
| Temple Bar Investment Trust | 1% |
| Law Debenture | 1% |
| City of London | 1% |
| Fidelity Special Value | 1% |
Annabel Brodie-Smith is head of communications at the Association of Investment Companies. The view expressed above should not be taken as investment advice.