Sale now on: big-name investment companies on wide discounts

This year has been a difficult one for investors, with markets in thrall to the twin worries of galloping inflation and war in Ukraine. The fallout has been felt across the investment trust sector, with share price discounts widening relative to underlying net asset values as nervous investors steer clear of riskier assets. The average investment company’s share price has fallen 9% since the start of the year.

Nor is there much sign of respite in the foreseeable future, which means discounts are likely to remain both wider and more volatile than usual.

The circumstances and short-term prospects are of course unsettling and worrying, but they do mean that bargain-hunters are able to pick up a wide range of trusts, including some of the most reliable long-term core holdings, at attractive discounts. As Pascal Dowling, a partner at broker Kepler, puts it: “The broad sell-off may well be creating opportunities for those who are happy to dive in and sit things out.”

So which mainstream investment trusts are the experts highlighting as looking particularly good value at the moment if you’re able to take a long-term perspective? All data that follows is taken from Winterflood’s daily spreadsheet on 27 April 2022.

Andrew McHattie, publisher of the monthly Investment Trust Newsletter, picks out Scottish Mortgage, still the global sector’s largest trust. Scottish Mortgage has endured a very difficult period as higher interest rates and inflation have reduced the attractions of high-growth stocks in the US and elsewhere. 

“Its share price has almost halved from its peak last November; where the shares once stood at a premium, they are on a small discount of 2.9% now and may tempt brave investors ready to start rebuilding a position,” he says. The trust’s 12-month average is around par.

F&C Investment Trust, the oldest trust and one of the great global generalists, is looking even better value, according to McHattie. It’s trading on a double-digit discount of almost 11%, against its 52-week average of 7.8%. “Yet it’s ranked fourth of 16 peer group trusts by NAV performance over the last year, and fifth over three years, so this wider discount seems unwarranted.”

There are particularly juicy opportunities among the UK sectors. In the UK Equity Income stable, Numis analyst Gavin Trodd likes Finsbury Growth & Income.

“It has an exceptional long-term track record, and despite recent periods of underperformance it is amongst the best performing UK equity income trusts over 10 years, delivering NAV total returns of 219% versus 123% for the UK Equity Income peer group,” Trodd comments. “We think that the 6.7% discount is an attractive entry point, with limited downside given the buyback policy.”

Kepler’s Dowling picks out BlackRock Income & Growth as an income-focused alternative. “It’s on a discount of 8.2%, which is much wider than the weighted average discount of 2.2% for the sector. It has a good team behind it and a strong track record of dividend growth over time,” he observes.

Mid and small cap trusts have had a particularly torrid time this year, but both McHattie and Iain Scouller of Stifel highlight the mid-cap Mercantile as an interesting choice. Mercantile is on a discount of 16.5% against its 12-month average of 10.9%; “with UK stocks widely considered cheap against international counterparts, this could be an effective ‘double-discount’ entry point,” says McHattie.

“For those wanting high exposure to mid-caps, Mercantile is a good option, with 76% of the portfolio in FTSE 250 companies and a broad spread portfolio with around 80 investments,” agrees Scouller.

Even among the Flexible sector’s more fashionable multi-asset options, discounts are wider than usual. At Numis, Trodd picks out RIT Capital, “a core long-term recommendation with an emphasis on capital protection which we believe fits well with the risk tolerance of many private investors.” It is currently on a 7% discount compared with the 12-month average discount of 4.5%, which Trodd sees as an attractive buying opportunity.

He also likes Caledonia, another multi-asset choice with a strong track record and a bias towards unquoted holdings, trading on a 27% discount. The 12-month average is around 22.5%.

Winterflood finally highlights a couple of respected smaller companies trusts looking cheap. In the UK sector, BlackRock Throgmorton trades on a 6.3% discount against a 12-month average premium of 1.4%, and is also a growth-focused recommendation of Stifel; as a global alternative, Smithson is on a 5.3% discount, again compared with a 1.4% average premium over the past year.