Difficult times ahead for private investors

Whilst this may be a challenging environment for equity investors, tax-incentivised savings have an important role to play at a time when our money is struggling to work hard for us.

With the end of tax year fast approaching, those investors with a long-term view may well be considering making the most of their ISA tax allowance. And with discounts in some investment company sectors having widened out in recent months, long-term investors may find opportunities at current levels.

In fact a number of financial advisers have recently become discount opportunists. Mark Dampier, Head of Research at Hargreaves Lansdown recently recommended Melchior Japan Investment Trust, commenting that: "Certainly, this is one for the brave, but on a 30 per cent discount if the trust was wound up there is money to be made." He likes the trust’s concentrated portfolio and notes that performance has improved following a review of investment policy.

Dampier also likes Electra Private Equity as another high risk recommendation, commenting that: “The underlying portfolio is lowly leveraged, it has cash, and in addition its commitments to future funding are fairly low. In fact the company has £18m in cash with a current market cap of £269m. The current discount is a whopping 58 per cent. Even if you think the NAV might be overstated there is plenty of latitude in this discount for that. The present price is around £7.40 whereas possibly the right price is somewhere nearer £12.00. Of course a large discount doesn’t mean that you will get a quick payback, discounts can stay big for quite some time. However I do feel you are buying value at these levels.”

Likewise, Christopher Sexton, Investment Director at Saunderson House, also recommends an investment company from a currently out of favour sector – Property. He recommends F&C Commercial Property Trust, commenting on the company’s “strong yield, healthy balance sheet and sizeable discount to net asset value.”

Of course the current market environment highlights the importance of taking a long-term view. But it’s also worth remembering that brave investors have often been rewarded for investing when markets are low – although the old adage that buying shares in a falling market is rather like trying to catch a falling knife (ie stock markets can always fall further), also holds true.

Jeremy Tigue, Manager of Foreign & Colonial Investment Trust gave some pause for thought when he commented recently on it's re-entry into the FTSE 100 index, pointing out that the trust’s entry has in the past been an indicator of a coming upturn in the market.

Tigue points out that it's entry into the FTSE 100 has much to do with the share price declines in the likes of 3i Group, transport operator FirstGroup and the London Stock Exchange.

However Jeremy Tigue added: “We were promoted to the FTSE 100 in 2003 for similar reasons after a long bear market, which bottomed in March of that year. The market subsequently moved upwards sharply, so history would suggest our inclusion is a bullish signal for markets.”

Only time will tell if history repeats itself this time around, but investors taking a long-term view will benefit from the upturn when it arrives.

Annabel Brodie-Smith, Communications Director, Association of Investment Companies (AIC). The views expressed here are her own.