6 investment trusts on a discount

Investment trusts are trading at the widest discount for a month-end since the global financial crisis.

At the end of October, the average investment trust was trading at a discount of 16.9% compared to net asset value (NAV), compared to 17.7% at the end of December 2008.

The net asset value, or NAV, is the value of all the investments a trust owns, less the value of what it owes, like debt, divided in total by the number of shares. It’s the intrinsic value of what you're buying. The premium or discount reflects the market sentiment towards those shares, dictated by investor demand.

But how can you tell if you’re buying a bargain, or a trust is cheap for a reason?

We’ve done the hard work for you. Here are six high-conviction investment trust ideas currently trading on a discount. While our analysts have conviction in these trusts, it’s worth noting that they’re trading at a discount for a reason, and this negative market sentiment could continue.

Investment trusts can sometimes invest in specialist higher-risk areas like smaller companies and unlisted (private) companies. Lots also use derivatives and gearing (borrowing to invest) which adds risk. Investors should only invest in them if they have the time and knowledge to carefully select and monitor them, and as always, they should be held as part of a diversified portfolio. You can find out more about a trust’s risks and charging structure in the Annual Report and Accounts and Key Investor Information.

This article isn’t personal advice. If you’re not sure an investment or course of action is right for you, ask for financial advice. Remember, yields are variable and no dividend is ever guaranteed. Past performance also isn’t a guide to future returns.

Ruffer Investment Company

Ruffer Investment Company aims for long-term growth, while offering some shelter during tough times for markets.

The trust invests in global shares, conventional and index-linked government bonds and cash. The managers also use some less conventional investment strategies, like derivatives, which have tended to help during times of market stress, but they do add risk.

Since the trust launched in 2004, there have only been four other periods where it’s traded as a discount for any meaningful length of time.

The trust has performed poorly relative to peers this year because the managers think that a global recession is coming. If there is a recession, the trust has potential to outperform peers, however it’s likely to continue to underperform if the economy grows.

The trust is trading at a discount of 3.31% at the time of writing.

Past performance isn’t a guide to the future. Source: Lipper IM, 31/10/2023.

FIND OUT MORE ABOUT RUFFER INVESTMENT COMPANY LIMITED INCLUDING CHARGES

VIEW RUFFER INVESTMENT COMPANY LIMITED KEY INVESTOR INFORMATION

Pacific Horizon Investment Trust

Roderick Snell and Ben Durrant, the managers of Pacific Horizon Investment Trust invest in what they believe to be the fastest growing companies in Asia (excluding Japan).

Their ‘bottom-up’ approach means this trust can look quite different to its benchmark, including investments in unlisted and smaller companies, which can increase risk.

Snell has delivered strong returns to investors since he assumed management in September 2013.

The trust currently trades at a discount of 11%.

This is around the lowest level it’s been over the past five years and could provide an attractive entry point for long-term investors. For context, in December 2020, it was trading at a premium of nearly 14%.

Past performance isn’t a guide to the future. Source: Lipper IM, 31/10/2023.

FIND OUT MORE ABOUT PACIFIC HORIZON INVESTMENT TRUST, INCLUDING CHARGES

VIEW PACIFIC HORIZON INVESTMENT TRUST KEY INVESTOR INFORMATION

City of London

From a UK perspective it’s very hard to look past City of London. The manager, Job Curtis’ tenure began in July 1991, and the trust is well ahead of the FTSE All-Share over that period.

After trading on a premium relatively consistently over the last 10 years, this looks like an attractive entry point. The trust has recently extended its record as the investment company that’s increased its dividend each year for the longest period – now standing at 57 years.

In recent years, the trust has effectively used revenue reserves built up in the good times, continuing to increase the dividends paid to investors through the pandemic. This was in spite of lots of UK companies cutting or suspending their dividends amid the uncertainty.

The trust has revenue reserves of £44.3mn, so continues to be on a solid financial footing to support dividends well into the future – of course, there’s no guarantee though.

City of London currently trades at a yield premium to the FTSE All-Share with a current dividend yield of 5.23%.

Past performance isn’t a guide to the future. Source: Lipper IM, 31/10/2023.

FIND OUT MORE ABOUT CITY OF LONDON INVESTMENT TRUST INCLUDING CHARGES

CITY OF LONDON INVESTMENT TRUST KEY INVESTOR INFORMATION

Fidelity Special Values

Fidelity Special Values runs a very similar approach to the open-ended fund we have on the Wealth Shortlist, but is trading at a near 8% discount to NAV, with a reasonable yield of 2.95%.

The trust invests in companies of different sizes, which can add risk. It's currently investing more in smaller and mid-sized companies. It means the trust’s well placed to benefit if these currently unloved parts of the market do well when the interest rate environment changes.

The manager uses gearing, which can amplify gains if stocks do well, but adds risk and costs.

The manager, Alex Wright’s tenure began in 2012, and the trust is well ahead of the FTSE All-Share index over that period – a good achievement considering ‘value’ has been out of favour for a lot of that period.

Past performance isn’t a guide to the future. Source: Lipper IM, 31/10/2023.

MORE ABOUT FIDELITY SPECIAL VALUES, INCLUDING CHARGES

VIEW FIDELITY SPECIAL VALUES KEY INVESTOR INFORMATION

Scottish American Investment Company (SAINTS)

SAINTS has typically traded at a premium for much of 2023. The only other recent period when it’s traded at a discount was in 2022, before that it was 2017.

This trust is run by Baillie Gifford but is different to many other pure-growth focused Baillie Gifford offerings, and instead aims to deliver outperformance through income and capital growth.

The trust has around 60 share holdings, and the managers also outsource bond, infrastructure, and property exposure to other teams at Baillie Gifford.

Since the current management team took over in 2017, they’ve provided top quartile returns, bar 2022 where the trust’s ‘growth’ (the opposite of value investing) tilt was out of favour.

This is a well-diversified trust currently trading at a 4.5% discount.

Past performance isn’t a guide to the future. Source: Lipper IM, 31/10/2023.

FIND OUT MORE ABOUT SCOTTISH AMERICAN INVESTMENT COMPANY INCLUDING CHARGES

VIEW SCOTTISH AMERICAN INVESTMENT COMPANY PLC KEY INFORMATION DOCUMENT

This trust has a holding in Hargreaves Lansdown PLC.

Smithson

Smithson currently trades at an attractive discount of 14.7%.

This is the widest discount the trust has ever been at, though it’s been trading at a discount for the last 24 months. Before that it was trading at a premium.

The trust has a growth tilt which was out of favour for much of 2022 – this led to poor performance. Outside of 2022, performance has been relatively good, and NAV is ahead of benchmark and category average since inception. If growth-style investing came back into favour, the trust could perform well.

The trust invests in 25-40 companies, and it currently holds 32. This is a high-conviction approach which means each holding can have a significant impact on performance, both positively and negatively. It also invests in smaller companies which increases risk.

Past performance isn’t a guide to the future. Source: Lipper IM, 31/10/2023.

MORE ABOUT SMITHSON INVESTMENT TRUST, INCLUDING CHARGES

VIEW SMITHSON INVESTMENT TRUST KEY INVESTOR INFORMATION

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