Why do investment trusts trade at a premium or discount to net asset value?
The share price of an investment trust can differ from the net asset value (NAV). If the current share price is above the NAV, the investment trust is said to be trading at a premium, i.e. it costs more to buy the shares than the underlying investments are worth. When the share price is below the NAV, this is known as trading at a discount.
An investment trust's share price is determined by supply and demand. In theory, if more people are willing to buy than to sell at the current price, the price will rise. Similarly, the share price will fall if there are more investors selling than buying.
If a trust or the area in which it invests is particularly popular, demand might push the share price to a premium over the NAV. A trust or area that is out-of-favour could trade at a discount to NAV.