Investment trusts are trading at the widest discount for a month-end since the global financial crisis and buying a great investment trust on a discount is like a great Black Friday bargain.
Hargreaves Lansdown picks 3 high-conviction investment trusts on a discount to look at in a bit more detail.
Emma Wall, head of investment analysis and research, Hargreaves Lansdown:
“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, according to data shared by the Association of Investment Companies.
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 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? With Black Friday approaching, we’ve done the hard work for you. Here are three high-conviction investment trust ideas currently trading on a discount. While our analysts have conviction in these trusts it is worth noting that they are trading at a discount for a reason, and this negative market sentiment may continue.”
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 such as 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.
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%.
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%.”