The FTSE 100 has performed relatively well in the last five years. It has risen by 28% and, when dividends are included, this figure is close to 50%. However, some investment trusts have been able to better this return during the same time period. In some cases, though, they continue to trade at a discount to their net asset value (NAV). As such, they could still offer good value for money, as well as high growth potential in the long run. Here are two such trusts which could be worth buying right now.
Rising by 128% in the last five years is the Mercantile Investment Trust (LSE: MRC). It focuses on mid and small-cap UK stocks, and they could help it to deliver impressive returns in future. One reason for this is the uncertainty surrounding the UK economy. With Brexit causing consumer and business confidence to come under pressure following a spike in inflation, many investors are focusing to a greater extent on larger, more internationally-exposed companies. This could mean their smaller peers offer wider margins of safety at the present time.
The company’s performance puts it in the top quartile of its sector over the last three years. Despite its strong performance, it continues to trade at a 10% discount to its NAV. This suggests there could be even greater capital growth potential on offer. It also has a dividend yield of 2.3%, which is only 30 basis points lower than inflation at the present time. The trust aims to keep dividend growth as close to inflation as possible in the long run, which could make it of interest to income investors.
However, the main focus of the Mercantile Investment Trust is capital growth. Holdings such as Bellway, Auto Trader and Just Eat mean that it has the potential to deliver further outperformance of the FTSE 100 in the next five years.
Also offering upside potential in the long run is the Jupiter UK Growth Investment Trust (LSE: JUKG). It has delivered a total return of 69% during the last five years. This puts it well ahead of the FTSE 100’s performance during the same time period. Despite this, it trades at a 3% discount to its NAV and this indicates it could offer further upside over the medium term.
The trust has a number of value opportunities within its major holdings. For example, its top 10 holdings include companies such as Lloyds and Barclays – both of which trade on relatively low price-to-earnings ratios.
Similarly, stocks such as Taylor Wimpey and IAG could deliver long-term growth because of low valuations which have been brought about by uncertain market conditions. And with a number of smaller companies included within its holdings, the trust has exposure to potentially fast-growing areas, too. Therefore, it could deliver further outperformance of the FTSE 100 in the long run.
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Peter Stephens owns shares in Lloyds, Barclays and Taylor Wimpey. The Motley Fool UK has recommended Auto Trader, Barclays, Just Eat, and Lloyds Banking Group. 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.