Cuts in interest rates around the world could see investment trusts benefit as fixed income becomes less attractive.
Sectors on the receiving end of this could be property, private equity and infrastructure, according to experts.
Annabel Brodie-Smith, communications director at the Association of Investment Companies, said: “Many of the alternative investment trust sectors have suffered due to higher interest rates and a shift towards fixed income.
“Analysts are predicting that investment trusts in sectors like property, private equity and infrastructure may benefit from interest rate cuts.”
Brodie-Smith said trusts in these sectors are trading at a discount, which could present an opportunity for investors.
Emma Bird, head of investment trust research at Winterflood, said the property and infrastructure sectors could benefit from interest cuts in the UK.
She said: “Underlying real estate valuations were hit in the rising interest rate environment, as demand for property from debt-funded buyers diminished.
“Property values across most sub-sectors now appear to be stabilising, but share price discounts to NAV remain at very wide levels.
“As the path of future interest rate cuts becomes clearer, property funds could see both asset prices and share prices improving as investor sentiment turns more positive.”
While Iain Scouller, an analyst at Stifel, thinks private equity and infrastructure will benefit across the board.
He said: “They have been impacted as a result of higher rates making fixed income relatively more attractive
“Those trusts offering long duration income especially should see some additional support. Many funds have debt on floating rates and so there should also be a direct benefit from lower interest costs.”
The infrastructure trend was backed by Ben Newell, investment companies analyst at Investec, who also thought the renewables sector would benefit.
He added: “As the direction of future interest rates becomes clearer, the disconnect between share prices and underlying valuations should reduce.”
tara.o'connor@ft.com
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