In an effort to drum up support for out-of-favour closed-end funds on the London Stock Exchange, the Association of Investment Companies (AIC) has published a list of the 20 best long-term performers whose shares trail more than 10% below the asset value of their investments. 

Despite the double-digit share price discounts, a wide range of investment trusts in technology, private equity, emerging markets, smaller companies and infrastructure have delivered top returns in the past 10 years, making their current valuations look a bit of a bargain, the AIC says. 

AIC communications director Annabel Brodie-Smith said: ‘Discounts can present an attractive buying opportunity and in the past, some brave investors who have bought at wide discounts have been rewarded with a double whammy of valuations rising and discounts narrowing.’

Top trusts on double-digit discounts:

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Company name	Share price total return 10-years	Discount	Average discount one-year
All investment companies	140%	-16.1%
Allianz Technology (ATT )	395.6%	-13.5%	-11.5%
India Capital Growth (IGC )	390.5%	-11.3%	-7.8%
Polar Capital Technology (PCT )	366.3%	-14.2%	-12.5%
HgCapital (HGT )	351.5%	-22.1%	-19.2%
NB Private Equity (NBPE )	321.8%	-30.5%	-31%
VietNam Holding (VNH )	295.2%	-14.1%	-14.5%
VinaCapital Vietnam Opportunities (VOF )	288.1%	-21.1%	-16.5%
Scottish Mortgage (SMT )	259.1%	-17.1%	-16.2%
HarbourVest Global Private Equity (HVPE )	246.5%	-47.3%	-44.1%
CT Private Equity (CTPE )	230.5%	-36.%	-32.2%
Alpha Real (ARTL )	230.5%	-40.6%	-39.9%
Pacific Horizon (PHI )	225.2%	-11.7%	-7.2%
Dunedin Enterprise (DIG )	222.8%	-15.6%	-5.4%
Oryx International Growth (OIG )	213.2%	-33.6%	-24.4%
Lindsell Train (LTI )	209.2%	-13.%	-3.7%
Abrdn Private Equity Opportunities (APEO )	204.6%	-44.4%	-40.8%
3i Infrastructure (3IN )	193%	-12.7%	-6.2%
Oakley Capital Investments (OCI )	189.3%	-36.%	-32.8%
Canadian General Investments (CGI )	179%	36.4%	na
Pantheon International (PIN )	178.6%	-38.1%	-42.7%

Data from AIC at 20 October, except one-year average discount, which is from Numis at 23 October.

Golden age

Leading the way is Allianz Technology (ATT ), which has generated a near-fivefold total return to shareholders, with a 395.6% gain over 10 years. 

The £989m investment trust run by Mike Seidenberg, who took over as lead manager 15 months ago, was hampered by rising interest rates, which strained the valuations of mid-cap growth stocks, which it targets. Nevertheless, its asset value jumped nearly 30% in the first half of this year on the back of the rally in artificial intelligence (AI) stocks, although this fell short of its benchmark, the Dow Jones World Technology index, which gained 33%.

Seidenberg told the AIC: ‘We are arguably living in the golden era of technology where companies become relevant or irrelevant depending on their adoption and use of technology.’

He said he aims to identify companies solving ‘some of the most difficult problems’, including global warming and access to inflation, and capitalise on ‘secular themes’.

ATT shares trade on a 13.5% discount, wider than the 11.5% average of the past year, prompting its board to buy back 10.8 million shares this year in a bid to narrow the valuation gap.

Rival Polar Capital Technology (PCT ) also trails on a slightly wider discount of just over 14% but can point to impressive five-year and 10-year gains, with shareholders enjoying a 366% total return in the past decade. 

Ben Rogoff, fund manager of the £3.2bn portfolio, believes ‘we have reached an inflection point in both the capabilities and adoption of AI’.

‘We are at the starting point of another secular cycle of technology-led disruption, which could have a greater economic impact than the internet, mobile and cloud transitions before it,’ he said.

Private equity stalwarts

Private equity funds feature prominently on the AIC’s list, accounting for eight of the 20 investment companies. Six of these eight have discounts of more than 30%, reflecting the investor wariness to their unquoted portfolios that existed before rising inflation and interest rates took their toll on sentiment. 

HgCapital (HGT ), NB Private Equity Partners (NBPE ), HarbourVest Global Private Equity (HVPE ), CT Private Equity (CTPE ), Abrdn Private Equity Opportunities (APEO ), Oakley Capital Investments (OCI ) and Pantheon International (PIN ) almost always invest in established, profitable businesses, often with a technology angle, rather than loss-making startups.

Their shares languish between 15% and 47% below asset value and yet have so far avoided the writedowns many investors feared in the downturn. Over 10 years, they have returned between 178% and 351% to shareholders.  

Paul Daggett, managing director of NBPE manager Neuberger Berman, said private equity has a long-term record of outperforming public markets, with ‘managers aiming to drive returns through active ownership – buying high-quality businesses, backing strong management teams, and driving strategic and operating changes to create value’.

Scottish Mortgage (SMT ), the Baillie Gifford global equity flagship that previously traded on a small premium above asset value, has derated to a painful 17% discount, which partly reflects investor concern over the nearly 30% its managers hold in large unquoted companies. 

Its shares have broadly halved from their peak in November 2021 but long-term holders have still done well, with a 259% total return over 10 years. 

Oryx International Growth (OIG ), a mostly UK-focused smaller companies fund run by Chris Mills at Harwood Capital, also partly invests in private equity. It has seen its already wide discount gap increase to more than 33%, yet over 10 years its shares have provided a 213% total return that is the envy of most of its competitors.

Look under the bonnet

Discounts have widened since early 2022, with the derating continuing this year as the average investment trust, excluding private equity giant 3i Group (III ), has moved from a 12% to 16% gap to net asset value.

However, discounts are not the only metric investors should use when considering trust options. Brodie-Smith said they should ‘look under the bonnet and understand why a company is trading at a discount to its assets and why that discount might narrow’, and take into consideration performance, portfolio charges and gearing (the borrowing many trusts use to boost long-term returns).