‘Buying opportunities are better than ever’ for investment trusts

This includes not only closed-ended portfolios that have been running on a discount long-term, but portfolios that have historically run on significant premiums now being reduced.

With that, Investment Week asked a series of investment trust specialists which portfolios were worth picking up at a discount amid the market and macroeconomic uncertainty.

One region several experts picked from was the UK, despite the headache the government’s latest fiscal policy has caused there.

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Dzmitry Lipski, head of fund research at interactive investor, said investment trust discounts “could still go wider” and “buying opportunities are better than they have been in some time”.

He said one of the most “compelling” opportunities was Henderson Smaller Companies, which is now on a 12.7% discount, according to the Association of Investment Companies.

With a yield of 3% Lipski said this portfolio provided both growth and income “at an incredible discount”.

“The UK is under loved, and smaller companies even more so. History tells us that this can be one of the best times to buy, as long as you have time on your side,” he said.

AJ Bell head of investment research Alena Kosava also highlighted a couple of UK focused options, including Fidelity Special Values and abrdn UK Smaller Companies Growth, both of which are on much wider discounts then their historic average (7.8% vs 2.6% and 12.5% vs 9.9%, respectively).

Kosava added that with the rapid pace of change in recent weeks, investors had turned to less liquid assets.

“Something is happening when your FT printed newspaper headline is already out of date by the time you have received it,” she said. “Infrastructure has been holding as a lot of assets are illiquid, but cracks have started to appear in the last few days.

“Property is another one where recent market transaction activity has been showing weakness.”

Two portfolios she highlighted were TR Property and Tritax Big Box REIT.

Outside of the UK, Europe and Asia and private equity were popular areas.

On the latter, Lipski said it was not an obvious choice in a recessionary, high inflation environment but this can often be a “good entry point for investors with a long-term view”.

He said the current average discount in that space was 30%, but there may be a slight lag before the true valuations are clear, due to the unlisted nature of the portfolios.

Although this makes judging the right trust “a little harder” he said there were still opportunities worth considering, including the abrdn Private Equity Opportunities trust.

Formerly known as Standard Life Private Equity, the trust accounts for 5% of ii’s model portfolios, and was about the allocation level Lipski recommended.

It has been run by Alan Gauld since launch, who Lipski described as “highly experienced”.

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Gauld and his team mainly focus on Europe for investment options, but the trust takes a global approach, investing in over 450 companies. However, it is somewhat concentrated with the top ten stocks accounting for over 40% of portfolio NAV.

Moving onto Europe and Juliet Schooling Latter, research director at FundCalibre. said that, like the UK, Europe was “unloved”.

She described the macroeconomic pictures as “less than positive”, owing to the Ukraine war and slow reaction of the ECB due to the “many different economic environments in its member countries”.

However, she said the region was “home to some world class companies” that sell products and services globally.

Here, Schooling Latter recommended the European Opportunities trust. Now on a 15.3% discount, the manager remains “extremely positive about the portfolio and the coming months”, according to the FundCalibre research director.

James Carthew, head of investment companies at QuotedData, was also bullish on Europe and recommended the Montanaro European Smaller Companies.

Investing in “solid, good quality businesses, with good ESG credentials”, Carthew said it was a trust they had liked for a long time and added, with its shares now 46% cheaper than at the start of the year.

“This could be a good time to access one of the sector’s long-term winners,” he said.

The final pick was Invesco Asia, chosen by Pascal Dowling, partner at Kepler Trust Intelligence.

He described the trust as “overlooked”, despite its 8.5% discount.

Pascal explained the “valuation sensitive approach” taken by the managers had led them to make “some good moves in and out of sectors in volatile markets”.

He added that while its performance may seem “dull versus high octane growth trusts in recent years”, it may be “coming into its own” in the new environment.

“If that is the case, perhaps we can expect the discount to narrow as the long-term numbers come in and the track record develops momentum.”