The average investment trust discount fell to 9.6% at the end of May, the first single-digit reading at a month end since 2022, according to data from the Association of Investment Companies (AIC).
The sector had been recovering from a trough of 18.8% recorded in October 2023, though the process was disrupted earlier this year when the outbreak of the Iran war pushed the average discount out to 14.3% in March from 11.6% in February.
More than a tenth of trusts, excluding venture capital trusts (VCTs), are now trading at a premium, with several actively issuing new shares.
Scottish Mortgage is among those at a premium, supported by its holding in SpaceX and a well-received set of results, while BlackRock Frontiers has attracted buyers seeking assets with low correlation to mainstream markets during the current period of geopolitical uncertainty.
Seraphim Space Investment Trust PLC (LSE:SSIT) recently raised £137 million, and City of London and Invesco Bond Income Plus have continued to issue equity throughout the conflict.
The narrowing of discounts reflects a broader shift in investor behaviour, with tolerance for wide discounts having diminished compared with earlier periods, the AIC suggests.
Pockets of deep value remain for those seeking them.
The renewable energy sector traded at an average discount of 29% at the end of May, though sentiment has improved slightly following Monday's announcement of a £548 million takeover offer for Bluefield Solar Income Fund by Drax, the energy company.
Analysts broadly view the deal as fairly priced, with debate continuing over how much the valuation implies for other assets in the sector.
The discount across renewables has narrowed by around two percentage points since the bid was announced.
Separately, the AIC noted that investment trusts offer exposure to 36 of the 48 countries competing in the World Cup, which begins on 11 June, reflecting the sector's roots in global investing since its inception in 1868.
The UK remains the single largest country exposure across the sector.
