These funds trade at a discount to their NTA because the management costs (inc. administration/performance fees) impact their total return.
For example - if the expected return is 8%, but the management costs are 2% - then the fund is only really returning 6%. In simple terms this means that it is only ever returning 75% of it's potential and thus will typically trade at a 25% discount their NTA.
This is one reason why most professional investors will never touch a managed fund, or buy into an IPO of an ETF (as the price usually drops immediately below NTA).
INE have actually done the right thing by reducing their management costs, and increasing the size of the fund which reduces the relative administration costs. This all means that INE should start to trade much closer to the NTA than it has in the past.
My only theory about why the price is depressed at the moment - is that people are probably "profit taking" after the rights issue (a lot of people who bought shares just for the purpose of selling them).. Unfortunately INE has a very shallow market depth - and this means that any stronger than usual selling can really hammer down the price.
- Clint.
INE Price at posting:
44.5¢ Sentiment: Hold Disclosure: Held
