Can these discounted investment trusts help you to achieve financial independence?

These three investment trusts seem to be trading at undeserved discounts to their net asset values.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When an investment trust trades at a discount to its net asset value (NAV), investors can effectively purchase a portfolio of assets for less than the sum of its parts. Although, some investment trusts deserve to trade at a discount because of concerns about poor management or excessive fees, I reckon these three trusts may be worth a closer look.

Small caps

The BlackRock Throgmorton Trust (LSE: THRG) is classic case of a well-run investment trust going cheap right now. Over the past five years, this fund has produced a total return of 165% for investors, which compares favourably to the UK smaller companies benchmark performance of 148%.

Run by Mike Prentis and Dan Whitestone, who have been managing the fund together since 2008, it invests primarily in small- and mid-cap stocks listed on the London Stock Exchange. The top five holdings at the end of April included CVS Group, JD Sports Fashion, 4imprint Group, Dechra Pharmaceuticals and Cineworld Holdings.

The fund has a NAV of 513p per share, but trades at a price of just 429p. This indicates a discount of 16.4%, which seems unwarranted given the liquidity of its assets and its historic outperformance.

Diversified

With a low total ongoing charge of just 0.54%, Foreign & Colonial Investment Trust (LSE: FRCL) could be a savvy way to gain international exposure at a reasonable cost.

The fund’s discount may be more modest, at just 7%, but investors would benefit from the fund’s diversification, both in geographical terms and across different industries. This offers investors some downside protection from country- or industry-specific risks, which may lead to significant outperformance in the long run.

Foreign & Colonial is cautiously managed, with no single equity investment currently representing more than 2% of its total assets. The US is the top country exposure in the portfolio, with 38.8% of its total assets at the end of June (up from 35% in June 2013). Other sizeable exposure is to the UK, with 12.6% (down from the 29% it represented four years ago), followed by Japan, Ireland and Germany.

Private equity

The last investment trust worth mentioning is Standard Life Private Equity Trust (LSE: SLPE), which currently trades at a discount to NAV of 16.2%.

Private equity has been one of the fastest-growing and best-performing alternative asset class in recent years, but it is often closed off to retail investors. Investment trusts, such as this one therefore give retail investors rare access to an opportunity to generate higher absolute returns while improving portfolio diversification.

What’s unique about private equity funds is that they typically invest in unquoted companies that are in the developing stage or have under-tapped potential. The Standard Life fund holds a diversified portfolio of private equity funds, with a majority focused on European companies. 

There is at least one major downside though. Fees can be quite expensive — last year, the fund had an AIC ongoing charge of 2.33% when performance fees were included. Nevertheless, the fund still managed to deliver a total return performance of 161% over the past five years.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Can the filthy cheap BP share price rocket in 2025? Here’s what the experts say

Harvey Jones took advantage of a tough year for the BP share price to add the stock to his portfolio…

Read more »

Investing Articles

I aim for a million buying just 10 or so shares!

Rather than investing in dozens of different companies, our writer is focussing on finding a few great ones to help…

Read more »

British Pennies on a Pound Note
Investing Articles

Has this 6% yielding penny share fallen too far?

After a testy few days for a penny share our writer holds, he revisits the investment case and weighs management…

Read more »

Investing Articles

These are the 3 top-yielding FTSE 250 stocks in my passive income portfolio

Mark Hartley explains why these three mid-cap stocks make good additions to his passive income portfolio, despite lacking the stability…

Read more »

Investing Articles

3 stock market pitfalls for beginners to look out for

When investing in the stock market it's easy to fall foul of these three big mistakes. Our writer considers some…

Read more »

Growth Shares

The second phase of AI’s started. I expect these UK shares to benefit

Edward Sheldon believes these UK shares could do well as artificial intelligence solutions are introduced within the corporate world.

Read more »

Investing Articles

How much will be needed to start buying shares in 2025?

Christopher Ruane explains why he thinks it need not cost the earth to start buying shares and details some considerations…

Read more »

Investing Articles

Can the Next share price defy the odds and grow another 25% next year?

Harvey Jones is in awe of the Next share price, which has shrugged off the troubles hitting retail for another…

Read more »