Several top-rated trusts focused on more specialist areas of the market can be found trading at significant discounts to net asset value, according to research by FE Trustnet.
As investment trust shares are traded on the stock market they can trade at a discount to the net asset value (NAV) of its underlying portfolio when its strategy, asset class or manager is out of favour.
This can sometimes present an attractive entry point for investors if they believe the share price will rises closer to the trust’s NAV, although it can also widen further and result in losses. Consequently, there are currently a number of top-rated trusts that can be accessed at attractive discounts to NAV.
Below FE Trustnet takes a closer look at the investment trusts with a five FE Crown rating – the top 10 per cent of UK retail funds based on scores for alpha, volatility and consistently strong performance – that are trading at double-digit discounts to NAV.
Baker Steel Resources Trust
The first top-rated closed-ended strategy on our list is the £54.8m Baker Steel Resources Trust, which invests in natural resources companies and targets long-term capital growth.
The trust’s managers invest predominantly in unlisted securities during the pre-public offering phase based on expectations of supply and demand imbalances.
However, it also has the ability to invest up to half the portfolio in listed special situation equities where the managers believe there are market inefficiencies or pricing anomalies to be exploited.
Since launch in 2010 the Baker Steel Resources Trust has made a loss of 54.17 per cent against a fall of 47.94 per cent for the average IT Commodities & Natural Resources trust.
Performance of trust vs sector & benchmark since launch
Source: FE Analytics
Over the past three years, however, the trust has returned 199.68 per cent compared with a 46.14 per cent for its average peer.
According to data from FE Analytics, Baker Steel Resources Trust is currently trading at a discount of 18.48 per cent to NAV. The trust is not geared has ongoing costs of 2.41 per cent.
Montanaro European Smaller Companies Trust
Next up is the £155m Montanaro European Smaller Companies Trust managed by George Cooke. Montanaro Asset Management specialises in researching and investing in smaller companies and has a particular focus on companies with a market valuation below €5bn.
The firm seeks out high quality companies with strong growth prospects that are profitable, have experienced management and are able to deliver sustainably high returns on capital employed.
It aims to avoid those with stretched balance sheets, poor cash generation, difficult-to-understand accounts and structurally challenged business models. In addition, Montanaro will not invest in companies generating a significant proportion of sales from products with negative societal impacts, such as tobacco, gambling, alcohol and guns.
Montanaro European Smaller Companies Trust has made a return of 240.68 per cent since the asset manager took over the mandate on 5 September 2006, compared with a rise of 215.59 per cent for the average peer and 194.55 per cent for the MSCI Europe ex UK Small Cap benchmark.
Performance of trust vs sector & benchmark since September 2006
Source: FE Analytics
The trust is trading at a discount to NAV of 11.4 per cent, is not geared, and has ongoing charges of 1.2 per cent, according to data from the Association of Investment Companies (AIC).
New Star Investment Trust
A name that might be more familiar to more seasoned investors is the £74.6m New Star Investment Trust, which was launched in 2000. The trust was launched by now-defunct New Star Asset Management led by industry veteran John Duffield until its acquisition in 2009 by Henderson Global Investors.
New Star’s biggest holding is FE Alpha Manager Terry Smith’s Fundsmith Equity, which represents 5.99 per cent of the portfolio. While the trust invests predominantly in other funds it does hold some direct investments.
The trust has made a 13.22 per cent total return since launch in May 2000 compared with a 156.83 per cent gain for the FTSE All Share benchmark and a 144.41 per cent for the average IT Flexible Investment peer.
According to its interim report at the end of last year, New Star Investment Trust was trading at a discount of 29.3 per cent and is not geared. It has ongoing costs of 1.74 per cent.
Tetragon Financial Group
Multi-asset closed-ended strategy $2.5bn Tetragon Financial Group also makes the list trading at a 44.5 per cent discount to NAV.
The fund invests in a bank loans, real estate, equities, credit, convertible bonds, private equity, infrastructure and alternative asset manager TFG Asset Management. The trust aims to provide stable returns to investors across various credit, equity, interest rate, inflation and real estate cycles.
Since launching in November 2015, Tetragon Financial Group has made a total return of 87.15 per cent compared with a 31.25 per cent gain for the average IT Flexible Investment trust.
The income-focused trust yields 5.6 per cent is not geared and has ongoing charges of 1.88 per cent (4.2 per cent with performance fee).
VinaCapital Vietnam Opportunity
VinaCapital’s Vietnamese equity-focused trust is next up, trading at a 16.7 per cent discount to NAV. The £611.7m trust is overseen by manager Andy Ho and targets medium-to-long term returns from companies either based in Vietnam, those with a substantial majority of their assets and operations in Vietnam, and those deriving a majority of revenues or income from the country.
Just over two-thirds of the portfolio is invested in listed equities, with 16.6 per cent held in unlisted names and 12.6 per cent in private equity.
Performance of trust vs sector & benchmark since launch
Source: FE Analytics
Investors in VinaCapital Vietnam Opportunity would have made a total return of 910.6 per cent since launch in October 2003 compared with a 550.47 per cent gain for the average IT Country Specialist Asia Pacific trust.
The trust is trading at a 16.7 per cent discount to NAV, is not geared and has ongoing charges of 1.77 per cent.
Volta Finance
Rounding out the list is Volta Finance, the €505.9m closed-ended fund managed by AXA Investment Managers.
A multi-asset credit strategy, the fund’s managers aim to preserve capital across the credit cycle and provide a stable stream of income for investors.
Assets include corporate credit, residential and commercial mortgages, auto and student loans, credit card and lease receivables – the amount outstanding for services provided.
The closed ended fund has made a return of 53.95 per cent since launch in May 2015, much higher than the average IT Debt peer’s 17.48 per cent gain.
Volta Finance is currently trading at a 11.1 per cent discount, is 15 per cent geared, has a yield of 8.9 per cent and ongoing charges of 1.95 per cent.