There are plenty of opportunities for investors to nab shares in strong investment companies at bargain prices as the average trust discount remains in double digits.
Researchers at Peel Hunt have scoured the investment trust universe – which contains over 400 portfolios – to find the few that can deliver outstanding capital growth for investors in 2024.
Here, we look at the shortlist of trusts that analysts at the firm think investors need to watch out for if they want to supercharge their savings this year.
UK equities
Value strategies have outperformed growth funds in this high interest rate environment and Anthony Leatham, head of investment trust research, expects this to continue in 2024.
He highlighted Fidelity Special Values, which invests in undervalued British businesses that manager Alex Wright believes have not been recognised by the market.
Wright’s value approach has been out of favour for most of his time as manager, yet the trust climbed 250% since he took charge in 2012, more than doubling the 111.5% return made by the average IA UK All Companies fund and 108.7% generated by the FTSE All Share benchmark.
Leatham said: “We continue to view elevated interest rates as positive for both active managers and strategies with a value focus and proven track record of identifying mispriced opportunities.
“Fidelity Special Value’s contrarian, value-focused investment style has faced strong style headwinds for most of the performance period, and outperformance was driven by stock selection, with a focus on the under-researched mid and small cap segments of the market.”
See also: The AIC: City of London most viewed trust as investors eye income
The £909m investment company invests across the cap spectrum – with a 28.1% allocation to FTSE 100 stocks and the rest held in mid and small cap assets – but those wanting to invest purely in the lower end of the market may want to consider Aberforth Smaller Companies.
It invests in the smallest companies in the UK market where the discounts are “particularly stark,” which has been beneficial to performance in recent years, according to Leatham. Several of the trust’s holdings have been purchased through acquisitions and mergers at prices far higher than the management team initially bought them at.
Leatham said: “As international and domestic buyers alike begin to realise the returns on offer at the small cap end of the UK market, we do not anticipate the current discounts to persist.”
Global equities
Although the team at Peel Hunt are “convinced of the recovery potential in UK equities,” investors may want to broaden their horizons with a global trust.
Here, they identified Bankers trust as the go-to portfolio for investors looking to make exceptional returns through global equities.
The £1.3bn trust is headed up by long-running manager Alex Crooke – who has led the portfolio since 2003 – yet he takes inspiration from Janus Henderson’s various research teams around the globe.
Markuz Jaffe, investment companies analyst at Peel Hunt, said that this has resulted in a well-diversified and dynamic set of 191 holdings.
It is up 120.4% over the past decade, trailing narrowly behind the 124.8% made by the IT Global sector over the same period. However, Bankers is not as concentrated in US tech as most global portfolios, missing out on high returns from the likes of Tesla and Nvidia in favour of greater consistency, Jaffe explained .
“One of the key differentiating factors in Bankers’ approach is flexibility,” he added. “The ability to adjust both the regional and style allocations in line with both bottom-up, stock-specific factors and top-down, macro considerations.
“In a changing and volatile environment, this flexible approach combined with a best-of-Janus Henderson manager skill provides a solid core global equity allocation for investors.”
At a discount of 12%, shares in Bankers rust are trading at their cheapest price in a decade, creating an eye-catching entry point for new investors, according to Jaffe.
Overseas equities
Researchers at Peel Hunt also identified individual regions that have especially attractive investment cases in 2024, including Japan.
The nation is beginning to feel the positive impact of corporate governance reforms, but half of the companies in the TOPIX index are trading well below book value despite improving conditions.
Nippon Active Value is the best vehicle for investors looking to take advantage of these mispriced opportunities, according to Thomas Pocock, investment companies researcher at Peel Hunt.
It invests in both public and private Japanese companies, working with leadership to push for improvements that eventually result in growing valuations. The £310m trust is up 68.4% since launching in 2020.
Japan presents opportunities for value investors, but more expensive markets such as India are also worth keeping an eye on in 2024.
Strong corporate earnings, continuing high inflows from international investors and attractive domestic consumption forecasts painting an alluring case for trusts such as Ashoka India Equity.
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Pocock noted its “impressive” performance despite a relatively short track record – the trust more than doubled investor’s capital since launching in 2018, climbing 138.7%.
“The team is one of the most well-resourced and experienced in the Indian equity space,” Pocock said. “The scale and duration of the trust’s outperformance strongly suggest to us that it has developed a successful and repeatable investment process that should continue to generate alpha for shareholders.”
For a broader exposure to growth opportunities in emerging markets, investors might want to look to Mobius trust.
Manager Carlos Hardenberg has constructed a high conviction portfolio of between 25 to 30 holdings, which consists of companies with deep moats and high financial productivity.
Emerging markets can be infamously volatile, but Cocock said Hardenberg’s meticulous investment criteria protects shareholders’ savings from downside risk, allowing them to make greater gains on the upside.
