Black Friday: bag an investment trust on a discount

by | Nov 21, 2022

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Just as shoppers like to bag a bargain on Black Friday, so do some investors. And, with all the turmoil this year in global stock markets, a number of areas have become much cheaper.

Thrifty investors looking to make a long-term investment may especially like to consider an investment trust that is trading on a discount.

“If I have learnt one thing in my 25 years+ investment career, it’s that you have more chance of making money if you can invest at a cheaper price,”noted Darius McDermott, managing director of FundCalibre. “The trouble is, cheap can sometimes just get cheaper, so you need to know you are getting good value for your money and won’t experience buyer’s remorse.”

At first glance, investing in a trust on a discount may seem like a no-brainer. With a discount of 10%, for example, investors could pick up £1 worth of assets for 90p. But there are many reasons a trust may be trading on a discount and, in some cases, the discount may be a warning sign. “So, understanding why a trust is trading at a discount is crucial to evaluating whether or not to invest,” said Darius.

What to look out for

“Checking whether the trust’s discount is bigger or smaller than its average, is a good starting point,” said Darius. “If it’s significantly bigger, it could be an opportunity. If it’s been on the same discount for a long time, you can ‘discount’ the discount.

“Then look to see if the trust has a bigger discount than its peer group. If it is a lot bigger, it could be a warning sign that something is up. At this point you could read the last annual or semi-annual report to see what the manager and board have to say.

“If the trust and its manager are usually good and just out of favour or going through a bad patch, it may still be an opportunity. If there are more fundamental causes for concern, it is perhaps one to leave on the shelf.

“And, at the end of the day, the most important consideration is: do you really need this trust in your investment portfolio, and will it help you reach your investment goals? If the answer is yes and you’ve had your eye on the trust for a while, taking advantage of a discount may well reap rewards in the future.”


Six trusts currently trading on a discount

Baillie Gifford Shin Nippon: discount 6.38%*

This trust invests in smaller companies listed on the Japanese stock market. Shin Nippon means ‘new Japan’ and this trust focuses on emerging or disrupted sectors, where the manager sees innovative growth opportunities.


European Opportunities Trust: discount: 11.98%*

This offers investors access to a high conviction portfolio of European equities with a bias towards medium and larger companies. The manager has developed a consistent investment process that has a record of success in different economic environments.


Fidelity China Special Situations: discount 11.35%*

This trust offers investors direct exposure to the China growth story by investing predominantly in companies listed both domestically in China and on the Hong Kong Stock Exchange. Up to 15% of the portfolio can also be invested in unlisted companies.


Global Smaller Companies Trust: discount 11.98%*

This trust invests in smaller companies from around the world. Having recently celebrated its 130th anniversary, the trust is one of the oldest in the market – it has also successfully produced 50 years’ worth of dividend growth for investors.


JPMorgan Emerging Markets: discount 10.48%*

This trust has an established long-term track record of investing in emerging market equities. The extensive team at JPMorgan takes a long-term approach to stock picking, with the focus exclusively on companies, rather than countries.


Schroder British Opportunities: discount 32.03%*

One of the few products to be launched in response to the Covid-19 pandemic, the Schroder British Opportunities trust (SBO) was designed to tap into the unloved status of UK equities by targeting companies which have been in the eye of the storm.

*Source: The AIC, data as at 17, November 2022

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