Some 14 investment trusts have delivered top-quartile returns across all standard time frames (one, three, five and 10 years) but are still available to investors at a discount, according to recent research by Portfolio Adviser.
Trust discounts have narrowed in recent years, with the average investment company now well below the 18% average discount to NAV (net asset value) they reached in 2023.
However, there are still plenty of strong-performing options available to investors that are somewhat mispriced compared to their performance.
To avoid including the past month of volatility in the Middle East and stockmarkets, all data in the study has been taken to the end of June.
See also: ‘Light at the end of the tunnel’: Investment trusts hit narrowest discount since 2022
A handful of trusts did manage to deliver top performances over these timeframes with lower discounts, such as Temple Bar Investment Trust, Fidelity Special Values, Polar Capital Financials and JPM European Growth and Income.
However, we have opted to remove these as they trade much closer to NAV (discounts range from 0.8% to 2% on these).
The top of the list is the Warana Capital Alternative Liquidity Limited hedge fund, a minnow with $3.1m in assets, trading at a 90% discount to NAV. It invests primarily in illiquid assets through other funds, including private equity, long short and private debt.
Moving down the chart, the £624m Hansa Investment Company also stood out, with a 40.6% discount, which senior Kepler analyst Ryan Lightfoot-Aminoff said has been largely misunderstood by investors.
The trust structure had become “a little bit messy” in recent years, leading to confusion over what the trust did, he explained. Part of this was that it used to be a much broader coalition and was created when the original Hansa trust moved its domicile to Bermuda in 2019, Lightfoot-Aminoff said.
“So, what the family owners have done is simplify the whole structure,” and it is now a more straightforward multi-asset portfolio with about 20% cash, he explained.
“That alone should be attractive, but because people have gone ‘I don’t know this’ they’ve just thrown it into the ‘too difficult bucket’ and decided not to touch it,” Lightfoot-Aminoff continued. “It’s fundamentally mispriced.”
Over 10 years, it’s up 166.9% to the end of the month, one of the best returns in the IT Flexible investment sector.
Another discounted trust on the chart was the Patria Private Equity trust, currently at a 28% discount to NAV.
Despite the volatility inherent in an illiquid asset class like private equity, the fund has been a top-five performer in the IT public equity sector across all standard timeframes. Over 10 years, it has more than doubled the performance of its benchmark, the FTSE All Share.
Property funds were a common theme on the chart, with three different strategies trading at double-digit discounts, despite top-quartile returns in their respective sectors. These included: Tritax Big Box REIT, Target Healthcare REIT and Columbia Threadneedle’s Property Investment Trust.
Two ESG-aligned funds also appear on the chart despite top-quartile returns over one, three, five and 10 years.
In the IT Renewable Energy sector, Foresight Environmental Infrastructure trades at a 35.3% discount. Meanwhile, Impax Environmental Markets is at a 15% discount, making it a target for activist investors including Saba Capital, which recently appointed its proposed directors to the board.
See also: ‘The outcome has unfolded exactly as anticipated’: Saba takes control of IEM
That said, investors didn’t just have to look in illiquid sectors to find trusts trading at a discount. For example, the £6.3bn F&C investment trust was trading on a 9.5% discount at the end of June, despite being one of the oldest global investment trusts.
Manager Paul Niven handles overall asset allocation, with stock selection delegated to specialists both inside and outside Columbia Threadneedle. Over one, three, five and 10 years, it has always outperformed the FTSE World, although in some cases by a tight margin.
Analysts at Rayner Spencer Mills Research praised the fund’s “unique proposition” as well as the manager’s willingness to manage style drift by reallocating towards certain geographical areas and strategies.
For the team, this makes it a solid choice for any investor who wants well-diversified exposure to a range of listed and unlisted holdings.
The other investment trusts available at a 5% discount despite best-in-class returns over standard time frames include: Franklin Templeton Emerging Markets Investment Trust, Aberdeen Asia Focus, Fidelity European Trust, BlackRock Latin America and the Henderson High Income Trust.
See also: Peel Hunt: Why everyone’s too caught up on discounts
