Investment trust repurchasing shares

Afternoon all,

"The Board continues to believe that a facility to reduce discount volatility is important to have in place, and is therefore seeking approval from shareholders to renew the authority at the forthcoming Annual General Meeting."

Last year, they bought back 80 000 shares at a discount of 11.6%. The trust is currently at a discount of 6.3%. The authority they want would allow them to buy at market price, as long as that was less than the NAV.

I think i get the idea: by buying up shares, they reduce the supply, and so increase the price, so bringing it closer to the NAV, and reducing the discount.

What i don't get is why they'd want to do this. Well, maybe i do. The practical value of the trust is the amount you could get if you sold it, which is to do with the share price, not the NAV. So, boosting the share price boosts the value. Except this only helps me personally if i'm planning to sell my shares soon, which i'm not. I'm holding them until i need to sell them to buy a house, pay for my children to go to university, bribe a judge, etc. When i want to sell them, i'll want the highest possible price. But in the meantime, i think i want a *low* price, since it means i can buy into the fund more cheaply (if i want to, which to be honest i probably don't). Plus, if they're going to spend money, i'd rather it was on buying more capital, and so building me more value, rather than propping up their share price. Although by buying back shares, are they effectively redistributing the assets of those shares to shares i hold?

Anyway, if anyone has any thoughts on what all of this means, do share.

tom

Reply to
Tom Anderson
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Bitstring , from the wonderful person Tom Anderson said

I should give it to them. Look at it this way (massively simplified)

a) There are 100 shares in the IT, whose sole assets consist of 100 shares of ABC Co, at £5 each. The IT shares are selling for £4 each - i.e. a 20% discount.

You have 1 share in the IT and thus (indirectly) 1 share in ABC Co.

b) The Board sells 40 shares of ABC Co for £200, and uses the cash to purchase 50 shares of The IT, also for £200.

c) The IT now has only 50 shares outstanding, of which you own 1, but now owns 60 shares in ABC Co; so you now own 1.2 of them. I.e. you are

20% better off.
Reply to
GSV Three Minds in a Can

This sounds good to me.

I guess i'm a little uncertain about what happens to shares the trust repurchases; do they effectively evaporate, or is there a pool of shares that are still live, but owned by the trust? If the latter, i'm not getting any more ownership of the ABC Co shares. Although i guess i do now own a share of the shares that the trust owns in itself, so it comes to the same thing.

Yeah.

You're right. Okay, i'll vote for it.

tom

Reply to
Tom Anderson

They have two choices. They can cancel the shares or they can hold them in treasury. In the latter case they can re-issue them if needed, for an employee share scheme or to buy another IT, for example.

In either case, they do not count as shares "in issue" and do not qualify for dividends. Hence the dividend is spread among ewer shares and the cover is enhanced.

Reply to
Terry Harper

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