Deep Dive: UK companies lean towards buybacks as trusts weigh discount narrowing efficiency

Limited options for investment trusts

Low UK company valuations have spurred a notable increase in share buyback activity in recent years, but the investment trust sector continues to debate its efficiency as a discount management tool.

Share buybacks — when a listed company buys back its own shares either through the open market or through a tender, and cancels them — were a tactic adopted by half of UK companies last year, according to Peel Hunt research. In addition to dividends, buybacks are another way a company can return cash to its shareholders. However, several large UK-listed firms, such as Shell or BP, have been increasingly diverting capital from dividends towards large share buybacks. Ian Lance, co-manager of the Temple Bar investment trust, attributed the rise in share buybacks to the undervaluation of ...