3 seriously underrated investment trusts to consider buying

Jon Smith runs through investment trust ideas, ranging from US small-caps to privately-listed companies, all of which he thinks could do well.

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Investment trusts are listed on the stock market like a normal public limited company. The difference is that the trusts contain a host of investments within it.

These are all pooled together, allowing a retail investor to simply buy the stock and get exposure to everything owned by the trust. Here are three that I think are underrated at the moment.

Access to private firms

First up is the abrdn Private Equity Opportunities Trust (LSE:APEO). The trust has fallen in value by 2% over the past year, but is up a very respectable 33% over the past three years. It also pays out a dividend, with the yield at 3.59%.

I believe this is an underrated trust because of what it allows retail investors access to. As the name suggests, abrdn as the manager uses the money to buy stakes in privately listed companies. It also puts money in private equity funds, which usually have a high minimum investment amount.

Given the barriers for a regular person like myself to directly invest in private companies, the trust is a great way to get exposure here. There are some strong businesses that aren’t listed on the stock market.

A risk is that it can be hard to sell a stake in a private company. This is because there is no open market to do so.

Tapping into knowledge

Another trust on my radar is the JPMorgan US Smaller Companies Investment Trust (LSE:JUSC). The stock is down 5% over the past year, but up 23% over the past three years.

I feel confident in picking large-cap US stocks, including those large tech names that are popular here in the UK. However, do I have the knowledge and expertise to pick US small-cap shares? Not at all.

Yet I do believe there’s value in this part of corporate America. So that’s why I feel the fund is underrated, in that it serves a really important area of the stock market. An investor can buy the trust and get access to the fund managers that have between 16-26 years’ experience in this sector.

Of course, investing in small-cap stocks is difficult and carries with it a higher level of risk and that should be acknowledged.

A hedge fund for anyone

The last trust is Pershing Square Holdings (LSE:PSH). The stock is listed on the FTSE 100, yet I feel it’s underrated as not many appreciate the value it can add to a portfolio.

Pershing Square is a hedge fund run by Bill Ackman who is well known for his views on certain stocks. Normally, someone would need a large amount of cash to get access to a hedge fund. Very few are listed on the stock market, let alone the size of Pershing Square.

This presents a unique opportunity for investors to get involved. The expertise involved in the fund and the type of financial instruments used to generate profit are beyond most of us.

The trust is up 7% over the past year, however it always has the potential to offer high returns due to the aggressive strategies it has. On the other had, this is the main risk. Large losses are possible and have happened in the past!

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.

Jon Smith has no position in any of the 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.

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