With strong investor sentiment driving the average discount-to-net-asset-value that investment trusts trade at to multi-year lows, it’s increasingly difficult to find underpriced opportunities for bargain hunters. For investment trust fans with a long-term mindset however, there are still a few tempting discount opportunities across some under-appreciated sectors.
One such fund is the BlackRock Smaller Companies Trust (LSE: BRSC), which currently trades at a 12% discount to its net asset value of 1,534p per share. UK smaller companies have fallen out of favour with investors for quite some time, with many investment trusts covering the sector trading at some of the widest discounts to their net asset values (NAV) in the industry.
But despite uncertainty surrounding the UK economy, not least because of Brexit, the performances of smaller company investment trusts have held up well in recent years. The BlackRock Smaller Companies Trust is a particularly strong performer, with a five-year NAV return of 140%, compared to its Numis Smaller Companies plus AIM (ex Investment Companies) return of just 68% over the same period.
Growth and income
The fund aims to achieve long-term capital growth for shareholders, but it also provides income to shareholders via its twice-yearly dividend, which currently gives shares in the trust a yield of 1.8%.
Fund manager Mike Prentis, who has been the lead manager of the investment trust since 2002, doesn’t think like your average stock picker. Prentis has a preference for the fastest growing, innovative companies and takes a long-term view on fundamentals. He also uses a highly diversified investment strategy, with no single holding accounting for more than 2.5% of the portfolio value.
Industrials dominate its portfolio, with a 33% sector weighting, and this is followed by financial services (15.8%) and consumer services (13.1%). Top holdings include Dechra Pharmaceuticals (2.1%), Avon Rubber (1.8%), 4imprint Group (1.7%), Robert Walters (1.6%) and Central Asia Metals (1.6%).
Another fund that’s worth a closer look is Symphony International Holdings (LSE: SIHL). The Asia-focused investment company offers exposure to the region’s rapidly expanding markets by investing in firms that are set to benefit from the rising disposable incomes of the region’s growing middle class.
Macroeconomic fundamentals are supportive and valuations are attractive, with Asian stocks expected to benefit from strong economic growth and structural reforms in various countries. Many analysts also reckon Asian equities are only still mid-cycle in their bull market, meaning there’s potential for outperformance against developed market equities this year.
What’s more, shares in the investment company are trading at a massive 26% discount to its NAV, giving investors the opportunity to pick up its shares for significantly less than the sum of its parts.
The company is invested in a number of high-growth sectors, which include healthcare, hospitality, lifestyle and real estate. And in addition to owning listed equity investments, 33% of the portfolio is invested in unquoted companies. This gives investors exposure to companies that are in the developing stage or have under-tapped potential.
It’s not an investment suited for everyone, but for investors looking for an undervalued play on Asia, Symphony International Holdings could be a great pick.
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.