Investment trusts, held in a Stocks and Shares ISA, let me invest in a range of companies without needing to evaluate every individual one. And I don’t have to put up with investment management companies trying to maximise their own profits rather than mine. No, when I buy, I become part-owner of the investment trust and the managers work for me.
Freetrade has identified three that seek out undervalued companies across the indexes, and I’m taking a look.
A contrarian investment trust
Fidelity Special Values (LSE: FSV) suffered a painful share price crunch in the first weeks of the pandemic. It quickly lost more than 50% of its start-of-year value, way worse than the FTSE indexes. It’s been muddling along since then, until the November spike came along. So far in the month, the price has soared 36%. But it is still down 15% year-to-date.
Net asset value per share (NAV) is estimated at 229p. So with the shares currently at 236p, we’re looking at a premium of 3%. It does look like the super-cheap opportunity has gone, but I’m still tempted to buy.
Fidelity describes itself as a “contrarian investment trust that thrives on volatility and uncertainty.” Sounds perfect for 2020. But what shares does it hold? Insurer Aviva is among FSV’s top stocks, and I rate that a top contrarian pick right now. Halfords is there too, another I see as undervalued.
Smaller companies
Freetrade’s next pick is Aberforth Smaller Companies (LSE: ASL). Small companies can be easily overlooked when investors are seeking the relative safety of blue-chip stocks. And those are what Aberforth looks for here.
Again, we see a November uptick, with the investment trust up 38%. The share price is down 22% so far in 2020, so maybe there’s more gain to come?
NAV stands at an estimated 1,229p, with the shares at 1,194p, at the time of writing. So we could pick up Aberforth Smaller Companies at a discount of 2.8%. Smaller stocks are likely to be more volatile though (but we’re talking 2020 here, so I guess anything goes).
I invested a lot in small-cap stocks in my earlier years, seeking growth rather than income. I see many as overlooked and undervalued now, and I think they’re likely to continue their recovery. Perhaps with some more ups and downs on the way.
Wide index spread
The last of the three is Lowland Investment Company (LSE: LWI), which has an interesting approach to sectors. This investment trust puts around half its cash into FTSE 100 companies. The rest goes into companies its managers think are undervalued, picked from across the smaller indexes.
I like the idea of mixing blue-chip stability with a bit of smaller-cap potential. So this one definitely appeals to me. And looking at top index holdings, I see Tesco and GlaxoSmithKline there. Those are both companies I’m bullish about for the long term.
The November spike struck here too. The Lowland share price has climbed 32% in November. But even so, the shares are still down 18% year-to-date. The current estimated NAV stands at 1,180p, with the shares on exactly the same price, as I write. So, in this case, there’s no discount or premium. But either way, I’m putting Lowland Investment on my list of investment trusts to examine more closely.
