Why the investment trust industry needs to stop fixating on DCMs

Not get-out-of-jail-free card

David Coombs, head of multi-asset investments at Rathbones, has said boards should not automatically implement discount control mechanisms (DCMs) as a "get-out-of-jail-free card" when trusts fall to a discount.

The manager (pictured) said if a trust's shares start trading at a discount to NAV,  the board is responsible for reviewing why this has happened and how the situation can be resolved. He said: "An investment trust will go to a discount for one or more of the following reasons: nobody wants to invest; the management is poor; the strategy is out of date; the sector is out of favour; or the board and management are too close. "The board must review the trust's strategy, not buy back shares. That is not solving the problem, it is just dealing with the symptoms." DCMs have become incre...