Trusts with a focus on income have seen the biggest moves, but there are now very few UK, US, European, Japanese or global growth trusts on wide discounts compared with their historical average.
However, the relative underperformance of emerging markets has pushed a number of trusts on to double-digit discounts, with some star managers with a proven long-term track record suffering in equal measure.
Moreover, though the general trend in developed markets has been of narrowing discounts, there are a handful of cheap options for anyone willing to look hard enough.
Here are five that the bargain hunters among you may wish to consider for your portfolio.
Hugh Young
The global head of equities at Aberdeen (pictured) is one of the highest-rated emerging markets managers on the planet, but even his range of trusts has suffered NAV losses and diminishing demand in the recent sell-off.
Three of them – Aberdeen New Dawn IT, Aberdeen New Thai IT and Aberdeen New India IT – are on double-digit discounts, ranging between 11 and 15 per cent.
All are on higher discounts compared with their one- and three-year averages, which has contributed to New Dawn and New India underperforming their respective benchmarks over the past 12 months.
Source: FE Analytics
All of the trusts remain well ahead over the longer-term, however, benefiting from Young’s focus on buying quality companies at a reasonable price.
Historically his style has seen his portfolios outperform during market sell-offs, though high quality stocks have been hit just as hard as cyclicals in the recent correction.
His underweight position in China and overweights in India and Thailand have further hurt New Dawn IT.
Charles Cade, analyst at Numis Securities, says that buying Young’s portfolios at these levels has historically been a very good move, and tips them as good buying opportunities.
“Definitely, this is an attractive level,” he said.
“It has been a very tough year or so for emerging markets, which is reflected in the discounts.”
“Aberdeen’s style has slightly underperformed over the period but over the long-term, his strict quality with value approach has been very clever and consistent. At these levels, I’d certainly back him.”
Aberdeen New Dawn IT is on the narrowest discount, at 11.18 per cent, followed by Aberdeen India IT at 13.6 per cent and Aberdeen New Thai IT at 14.62 per cent.
New Dawn’s discount has been as low as 0.68 per cent in the last 12 months, while New Thai IT has been on a slight premium over the period.
The three trusts have ongoing charges ranging between 1.1 and 1.6 per cent.
New India is the most expensive and has a performance fee on top of the OCF.
Richard Smith
FE Alpha Manager Richard Smith has been running UK small cap portfolios since the 1970s, joining Invesco Perpetual in 2002.
Like all UK small cap trusts, Invesco Perpetual UK Smaller Companies IT has delivered strong absolute returns of late, but the manager’s cautious stance and wariness of valuations has led his portfolio to underperform some of his peers more recently.
Performance of trust, sector and index over 1yr
Source: FE Analytics
His trust is still ahead of its benchmark over one, three, five and 10 years, with returns exceeding 330 per cent over the last decade.
AIC data shows the trust is on one of the highest discounts in the sector, at 12.2 per cent.
Cade rates both Smith and the trust, but doubts whether the discount is likely to narrow any time soon.
“Typically, a trust like this has traded close to its average because of the ownership,” he explained.
“Institutional investors make up a lot of the assets and historically they have bought and sold stock quite quickly after a move in the discount.”
He says Royal London, West Yorkshire and value-focused 1607 Capital Partners are among Invesco Perpetual UK Smaller Companies IT’s biggest shareholders.
Smith has run the trust since June 2002 with co-manager Jonathan Brown.
It has ongoing charges of 0.87 per cent, excluding performance fee. Smith is set to retire this year, leaving sole responsibility to co-manager Jonathan Brown, who has also run the trust since 2002.
John Pennink
While unknown in the open-ended industry, John Pennink is a highly rated deep-value global manager, with Winterflood’s Simon Elliott among his admirers.
His British Empire Securities & General Trust targets stocks – including other investment trusts – that are on discounts to their net asset value.
This style means the trust is susceptible to bouts of underperformance – including 2011 and 2013 – but overall it has performed very well under Pennink since he took it over in January 2001.
Our data shows his trust has returned 214.68 per cent over the past 13 years or so, more than quadrupling the returns of its MSCI World benchmark.
Performance of trust and index since Jan 2001
Source: FE Analytics
The trust’s recent soft patch has seen its discount widen to 12.72 per cent.
Cade is more optimistic about the likelihood of this trust’s discount coming in, highlighting it as one investors looking for short-term value opportunities should consider.
“I do think this is attractive,” he said.
“It’s on a discount already given what it invests in, but its overall discount tends to reflect past performance.”
“It’s had quite a lot in Europe, which has been a problem area. Investors seem to be a little unsure with what they’re getting with this trust because it’s hard to gauge how it will perform in certain conditions, but it’s got a very good longer term record and I’m positive about it at this level.”
British Empire Securities & General Trust has ongoing charges of 0.71 per cent and is currently yielding 2.2 per cent.
Matthew Dobbs
Schroders’ highly rated manager Matthew Dobbs is another one who has been hit by the waning sentiment towards emerging markets.
While his Schroder Oriental Income IT remains on a premium thanks to its focus on yield, the growth-orientated Schroder Asia Pacific IT has seen its discount widen from a low of 6.68 per cent in the last 12 months to just over 10 per cent at the time of writing.
Dobbs has run the trust since 1995 and has a very good record versus his MSCI Asia Pacific ex Japan benchmark over the period, but he has fallen harder in the recent sell-off, underperforming the index over one year.
Performance of trust vs index since Jan 1999
Source: FE Analytics
The trust’s slight gearing has contributed to the underperformance, as has the manager’s underweight in Korea and China.
Again, Cade thinks this Asia Pacific trust is very attractively valued given the calibre of manager who is running it.
“Most Asia Pacific trusts have gone out to discounts of this level and so the key is to find those with a good manager,” he said.
“10 per cent is about as wide it’s going to get given that these trusts will protect the discount with share buy-backs.”
“Dobbs has an excellent track record going back to 1995 and has consistently performed very well. Like Young, he tends to go for quality but is a little more pragmatic.”
Schroder Asia Pacific IT has ongoing charges of 1.11 per cent.
Margaret Lawson
Of all the trusts mentioned in the piece, the £4.3m SVM UK Emerging trust is the most left-field, and certainly the most illiquid.
The small and mid cap-focused portfolio has had a mixed time over the last decade, although it has thrived since FE Alpha Manager Margaret Lawson joined the team late last year.
Our data shows the trust, which only prices monthly, has returned 43.21 per cent over the past 12 months, putting it ahead of its IT UK Smaller Companies sector average and IMA UK All Companies benchmark.
Performance of trust and sectors over 1yr
Source: FE Analytics
The trust’s mixed longer-term record and poor liquidity ensure it remains on a double-digit discount, however, of 22 per cent.
Cade acknowledges that Lawson has a strong track record running open-ended funds, but says the trust is too small for mainstream investors to consider.
“It’s completely off the radar and has a huge spread across its shares,” he said.
“The trust is very small and a lot of the ownership comes from SVM itself.”
“Given there’s been so many changes at SVM recently as well, this isn’t one I’d look at.”
SVM UK Emerging IT is one of the more expensive investment trusts available to investors, with ongoing charges of 2.9 per cent.
Lawson and co-manager Colin McLean hold a number of well-known retailers, such as Ted Baker and ASOS – his two largest holdings – and Superdry owner Supergroup.
