Why investment trusts are buying themselves more than ever

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Shares Magazine

12 March 2026

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Share buybacks are a commonplace market phenomenon, but it’s a tool that’s used for widely different reasons. 

The practice involves a listed firm buying back its own stock so that the total amount of its shares in issue is reduced. The overall aim is to enhance the value of the remaining shares and for standard public trading companies, this is often a means of returning surplus cash to investors. 

Shareholders of FTSE 100 oil and gas major BP recently woke up to the news that it was suspending its share buyback programme as the company pivoted the company to use its cash to try and sort out its large debt pile. 

But for investment trusts buybacks are used as one of several tools deployed to try and manage their ‘discounts’. Research by AJ Bell suggests that the biggest buybacks in the trust universe may have been at least partly effective last year in achieving this goal.

What is an investment trust?

Trusts are listed on the public market just like BP or other listed companies, but they are a wholly different type of ‘company’. A trust’s purpose is to invest in other assets (such as equities, bonds, property) on behalf of its shareholders, rather than operating as a business providing goods and services. 

Because it’s listed, a trust will therefore run at either a ‘premium’ or a ‘discount’. This is the difference between a trust’s share price, or what it trades for on the stock exchange, and its net asset value (NAV), the actual worth of its holdings.

A discount occurs when then share price is lower than the NAV and this can happen even if a trust has been making positive total returns for its investors.

Why do discounts arise?

Most UK investment trusts have been running on a perpetual discount for several years due to a myriad of headwinds.

Some of these challenges have been general issues, like when inflation and, in turn, interest rates were rising rapidly, thereby increasing the appeal of lower risk assets like bonds and cash.

Increased geopolitical uncertainty saw rampant volatility in the market and these factors also led investors to search for lower risk options. But some issues contributing to discounts are more sector specific, such as the renewable energy companies dealing with all the above while unsupportive government policies dampen demand for its assets.

According to data from the Association of Investment Companies (AIC), the average trust is running on an 11.8% discount.

Activists circling the trust space

The discount/premium mechanism is a well-known element of trusts and is not inherently a bad thing. It can allow investors the chance to invest in a trust, or add to their holdings, if they think it is being mispriced by the market.

But as we’ve seen in recent months, persistent discounts have also been seized upon by activist investors as they attempt to shake things up.

US hedge fund group Saba Capital has been a high-profile example of this, investing in more than 40 trusts since it emerged on the scene with a bang two years ago and using the discounts as a way to build up meaningful stakes and trigger major shareholder votes to try and change things (be it the board, the investment approach, or both).

Trust boards have been carrying out share buybacks with increasing frequency to bring the portfolios back to what they regard as a fairer market value, as well as to try and protect themselves against the activists circling the sector.

A record year for trust buybacks 

Last year, a record £10.2 billion worth of shares were bought back by investment trusts, according to the AIC. This was 36% higher than the year before, with each year sending the total to new heights since the pandemic. The table below shows the top five trust buybacks by value for 2025.  

Strikingly, all of five trusts featured in the table above ended the year on a narrower discount to that which they started it with. Other factors will have had an impact here, but it offers at least some evidence that buybacks might be working. 

Of the total buybacks completed in 2025, Baillie Gifford’s Scottish Mortgage accounted for more than 15%, buying back £1.7 billion worth of its shares over the period.

Scottish Mortgage committed to the biggest share buyback programme in its history back in 2024, with plans to repurchase at least £1 billion worth of its own shares over the following two years. As of August 2025, Scottish Mortgage had repurchased £2.5 billion of its shares, but it still hasn’t managed to close the gap between share price and net asset value entirely.

Scottish Mortgage started the year at -10.7% and ended 2025 on -9%. At its widest, the discount widened out to -16% amid the US ‘Liberation Day’ chaos which shook global markets. At its narrowest, the discount shrank to -5.3%.

Buybacks are a useful tool to help manage a discount, but they are not a silver bullet. Their overall effectiveness has long been debated, a topic which has only become more relevant as markets have become more volatile.

Discounts in the context of investment trusts are not inherently a sign that something is wrong, but sometimes the market is trying to tell you something.

And ultimately, share buybacks cannot prevent a trust going onto an even bigger discount if there is simply no demand from investors.

Buybacks can’t, for example, fix wholesale negative sector sentiment, something which has been evident in the renewables trust space.

Nick Train, manager of the Finsbury Growth & Income Trust, which was extremely busy buying its own stock last year, has continuously lamented the disenchanted attitude domestic and international investors have had with London-listed stocks which has fed into his UK-focused trust’s discount.

Why buybacks can come in for criticism

As well as debating their effectiveness, some analysts argue that buybacks show a lack of faith on the part of the board in the manager’s ability to identify good investment opportunities. Drawing the conclusion that a better use of the cash is to buy themselves rather than anything else on the market.

Portfolio managers would almost always prefer to be out trying to tap into the next big investment trend or topping up their existing holdings if the valuation allows. But most see buybacks as one of the tools boards have at their disposal to act in shareholders’ best interests by managing the discount level. Many were criticised for not pulling the buyback lever sooner when the discounts really started to become entrenched three years ago.

Winterflood Securities latest investment trust industry survey found that 79% of experienced investors said discount control policies were ‘extremely’ important to them. Most boards do have a semi-informal ‘trigger level’ in place, where they will consider initiating a buyback when the discount hits a certain point. 

Although 2026 has started off with a dip in investment trust buyback volumes – down 10% month-on-month in January – it seems unlikely that boards will cease buying themselves anytime soon given there are seemingly fewer quiet days in the market now and activists are only getting louder.