BlackRock World Mining, Fidelity Japan, SVM UK Emerging, New Star IT and Volta Finance are some of the investment trusts that are trading at a significant discounts while holding the maximum FE Crown rating.
As investment trusts are bought and sold on the secondary market, they can trade at a discount to the underlying value of their holdings, a figure that will vary depending on sentiment towards the trust.
Because of this, investors who bought into a trust at a discount can benefit if the share price rises and the discount narrows, although they can also suffer losses should it widen further if the trust’s shares go down.
But as AJ Bell personal finance analyst Laura Suter notes, for the bargain-hunters out there, buying well-run and strong-performing trusts on a discount is one way to increase the value of one’s investment, provided the trust at some point returns to its fair value.
Below, FE Trustnet takes a closer look at the investment trusts that currently hold the maximum of five FE Crowns and are also trading at double-digit discounts to their net asset value (NAV).
Fidelity Japan Trust
The first five FE Crown-rated portfolio investors can pick up on a heavy discount is the £209.4m Fidelity Japan Trust, overseen by Nicholas Price since 2015.
Price favours companies with superior mid- to long-term earnings growth potential, competent management focused on raising shareholder returns and attractive valuations.
The investment company’s latest half-yearly results showed Fidelity Japan Trust’s NAV increased by 8.3 per cent in sterling terms over the six months to June 2018.
This was despite rising global macro concerns including slowing global growth, tightening financial conditions in the US and rising political tensions.
According to Price, corporate earnings continued to grow over the period, with Japanese companies returning surplus cash to shareholders by increasing share buybacks.
“While global economic expansion is moderating at this late stage of the cycle, growth is expected to remain relatively robust. The trend of central bank balance sheet expansion is starting to reverse, but both fiscal and monetary policy remain supportive of growth in Japan,” the manager added.
Performance of trust vs sector and index under Price
Source: FE Analytics
Although the discount has narrowed over the 12 months to July 2018, the fund continues to trade at a discount of 12.2 per cent to its NAV.
Under Price, the trust has delivered a 114.93 per cent total return compared with an 82.76 per cent gain for the average member of the IT Japan sector and a rise of 69.82 per cent for the TSE TOPIX index.
Fidelity Japan has an ongoing charge figure of 1.31 per cent and is 13 per cent geared, according to data from the Association of Investment Companies (AIC).
New Star IT
New Star Investment Trust – a fund of funds portfolio run by Brompton Asset Management – is next on the list.
The trust is trading at a 32.6 per cent discount to its NAV, data from the AIC shows.
The £78.1m fund was set up by veteran investor John Duffield, who founded Jupiter Asset Management and was previously chief executive of New Star Asset Management before it was bought by Henderson.
With the aim of achieving long-term capital growth, New Star allocates its assets actively to global investment opportunities while spreading investment risk through investment in equity, bond, commodity, real estate, currency and other asset classes.
It can also invest in pooled investment vehicles, exchange traded funds, futures, options and limited partnerships.
New Star IT’s top holdings include FP CRUX European Special Situations, Newton Global Income, Fundsmith Equity, Aberforth Split Level Income Trust and Polar Capital Global Technology.
The trust has been top quartile over three years and second quartile over five, delivering a 64.76 per cent total return over the latter period mentioned. This is compared with a gain of 46.83 per cent for the FTSE All Share index and a 40.21 per cent gain for the average fund in the IT Flexible Investment sector.
New Star IT has an ongoing charge of 0.92 per cent and is not geared.
BlackRock World Mining
Another investment trust that is trading at a double-digit discount and holds the maximum of five FE Crowns is Evy Hambro and Olivia Markham’s BlackRock World Mining.
Performance of trust vs sector and index over 3yrs
Source: FE Analytics
The £795.8m portfolio predominantly invests in global companies that operate in the commodity industry.
According to Kepler Trust Intelligence, the trust is more biased towards higher quality companies than its benchmark index (the Euromoney Global Mining index), which continue to remain disciplined as regards to capital allocation and are to some extent in a phase of “self-help” – paying down debt and de-risking their businesses.
“The trust’s discount has remained resolutely wider than the 10 per cent level. We believe that given the optimism of the manager on the underlying valuations and health of portfolio businesses, combined with the discount, this could be an attractive entry point,” the research house added.
BlackRock World Mining is up 95.08 per cent over three years, having almost doubled the gains by the average investment trust in the IT Commodities & Natural resources sector and ahead of the EMIX Global Mining index gains of 86.93 per cent.
It has ongoing charges of 0.98 per cent and is 16 per cent geared.
SVM UK Emerging
Trading at a 17.3 per cent discount to its NAV is SVM UK Emerging, a closed-ended strategy investing in smaller companies that not only holds the top FE Crown rating but is also run by FE Alpha Manager Margaret Lawson.
Lawson, who also heads up the five FE Crown-rated SVM UK Growth fund, has more than 38 years of industry experience.
According to the latest company figures, SVM UK Emerging’s NAV has more than doubled since October 2012, when she took over management of the portfolio.
It invests in small- and medium-sized UK companies and aims to outperform the IA UK All Companies sector average on a total return basis.
The trust’s top sector exposure is to consumer services (29.3 per cent), financials (18.6 per cent) and consumer goods (14.2 per cent). It has the popular British producer of drink mixers FeverTree as its top holding.
Over the time Lawson has overseen SVM UK Emerging, it has delivered a 166.25 per cent total return compared with a 157.26 per cent gain for the IT UK Smaller Companies sector. SVM UK Emerging has ongoing charges of 1.10 per cent and is not geared.
Performance of fund under Lawson
Source: FE Analytics
Other investment trusts currently trading at a double digits to their NAV that hold the maximum number of FE Crowns include AXA Investment Managers Volta Finance Limited (14.11 per cent discount), El Oro Ltd (17 per cent discount) and VinaCapital Vietnam Opportunity (19.8 per cent discount).