However, with some signs investors may be cooling on growth and warming to value, which of these two investment trusts do I think is the better buy today?

Contrasting performances

The table below highlights the contrasting performances of AGT and SMT over both the short and long term.

SMT has delivered two to three times the gains of AGT over three, five and 10 years. It’s also well ahead over one year, although both investment trusts have produced very strong returns in this period. Indeed, they’re rank at one and two in the Association of Investment Companies’ global category.

However, over the last six months, their positions have reversed. AGT has materially outperformed SMT. Is this merely a temporary reversal? Or could it be the start of a long period of outperformance by AGT, much as the last decade was for SMT?

A tale of two investment trusts’ strategies

AGT’s value approach is to find stocks it believes are trading at wide discounts to their intrinsic net asset values. SMT’s growth approach is to find stocks it believes have potential to deliver exceptional returns.

The two trusts’ largest equity holdings give a flavour of the kind of stocks their different approaches produce:

It seems unlikely these investment trusts will fundamentally change their distinctive strategies. Both strategies are attractively well defined and long established. I’d put SMT and AGT among the best-in-class trusts at the extreme growth and deep value ends of the investing spectrum.

The popularity of growth and value tends to be cyclical. One may outperform the other for lengthy periods. However, I can see a good argument for having exposure to both rather than trying to time hopping between them. And by owning the best in class from growth and value, I’d hope to outperform the market over the long term.

But what if I could only choose one today?

Investment trust better buy: SMT or AGT?

Growth strategies have enjoyed a long period in the sun. And SMT has successfully identified some of the growth themes and stocks that have produced the highest returns.

Intuitively, after a such a period of dominance by growth, I’d lean towards favouring value right now. I get a nosebleed just looking at the sky-high valuations of many of SMT’s holdings! Still, it’s possible the relative underperformance of value could persist. And that SMT’s many big-concept stocks, such as Tesla, could continue to defy conventional valuation measures.

On balance though, if I had to choose only one of the two investment trusts today, I’d be inclined to pass on SMT and buy AGT. Of course, both trusts are actively managed and stock selection is important to their performances. As such, I have to accept the risk that either or both could underperform the wider market.

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UK value stocks #1

M.P. Evans Group (LSE: MPE) is a producer of sustainable crude palm oil from plantations in Indonesia. Its well invested estates and strategy of steady expansion underpin its commitment to pay attractive returns to investors through increasing dividends.

This £346m-cap FTSE AIM 50 stock trades at a discount to Asian peers. A few years ago, shareholders resoundingly rejected a 740p-a-share offer from one such peer on the grounds it substantially undervalued the business. The latest independent valuation of its assets gives the group an equity value of 1,001p per share.

The share price is 635p, as I’m writing. This is a 14% discount to the rejected offer and a 37% discount to the independent valuation. With the prospect of steady asset expansion, rising profits and increasing dividends, MPE’s shares look very buyable to my eye.

UK value stocks #2

Another business I’d be happy to buy a slice of is Ocean Wilsons Holdings (LSE: OCN). This one is listed on the FTSE main market, and has a capitalisation of £241.4m.

OCN has a controlling 58.16% interest in Sao Paolo-listed Wilson Sons — one of the largest providers of maritime services (towage, container terminals and so on) in Brazil. OCN also has a portfolio of around 80 international fund investments (e.g. Findlay Park American and Adelphi European Select Equity).

Based on Wilson Sons’ latest share price, and current exchange rates, OCN’s interest in the business can be valued at £243.4m. This is equivalent to 688p per OCN share. Meanwhile, the value of its investment portfolio last reported (31 October) was £211m, or 597p per OCN share.

Therefore, the sum of 688p and 597p gives OCN shares an intrinsic value of 1,285p. Yet they’re trading at 682.5p — an implied discount of 47%. Put another way, OCN shares buy you Wilson Sons at a small discount to its price on the Sao Paolo stock exchange and you get the £211m investment portfolio thrown in for free. My calculations suggest OCN is another top value stock on the UK market.

A cornucopia of cheap assets

Finally, I’d also be happy to buy FTSE 250-listed AVI Global Trust (LSE: AGT). It scours the globe for opportunities — typically holding companies and closed-end funds — where the price is at a significant discount to the estimated underlying net asset value (NAV).

For example, its top 10 holdings at its last year-end (30 September) included Pershing Square (estimated discount 30%), Softbank (56%) and Prosus (34%).

And AVI Global’s holdings each own, or have an interest in, a number of assets. For example, you’ll find coffeehouse chain Starbucks, and Chinese technology giants Alibaba and Tencent in the portfolios of Pershing, Softbank and Prosus respectively.

In addition to the discounts to NAV of its holdings, AVI Global is trading at a discount. Its share price of 794p is just over 10% below its last reported NAV of 883p (at market close on Thursday). As such, it’s another great UK value stock in my book.

The post 3 UK value stocks I think could make me rich appeared first on The Motley Fool UK.

The FAANGs are Facebook, Amazon, Apple, Netflix and Google’s parent Alphabet. Bond proxies are blue-chip companies that pay reliable, bond-coupon-like dividends. Think Procter & Gamble and Johnson & Johnson in the US, and Unilever and Diageo in the UK.

These themes are reflected in the portfolios of London’s current best-performing investment trusts in the global sector: Scottish Mortgage (a 10-year return of 609%) and Lindsell Train (625%).

However, as almost all investment literature warns, “past performance may not be indicative of future results”. And I’m concerned this could well be the case with the likes of Scottish Mortgage. This is due to the eye-watering valuations of many of the underlying holdings.

Unfashionable

Value investing, as formulated by Ben Graham aeons ago, has outperformed growth over long timescales. As such, I believe unfashionable, value-focused investment trusts could deliver superior returns in the coming decades.

With this in mind, I’d be happy to buy FTSE 250-listed AVI Global Trust (LSE: AGT) and Caledonia Investments (LSE: CLDN). Their returns over the last 10 years — 130% and 157%, respectively — have been solid rather than spectacular.

Discount-to-NAV specialist

AVI Global (formerly British Empire Trust) was established in 1889, and has been managed by Asset Value Investors since 1985. This trust seeks out listed companies whose shares stand at compelling discounts to their estimated underlying net asset values (NAVs). It looks for attractive businesses, with honest, intelligent management willing to engage with shareholders, and catalysts to bring the share prices to their true values.

It trawls the world for opportunities. For example, it invested in 16 Japanese companies with substantial excess capital, and is engaging with management about releasing it. The trust’s other investments include discounted closed-end investment companies (such as Third Point Offshore), asset-backed groups (such as Sony Corp) and family-backed holding companies (such as Jardine Strategic).

AVI Global reckons its portfolio is at a discount of over 30% to underlying NAV. And with the trust itself trading at a discount of around 10%, I see good value on offer for investors today.

Long-term value investor

Caledonia’s heritage goes back to the shipping empire established by Sir Charles Cayzer in 1878. The trust still enjoys the backing of the Cayzer family today. It says this gives “support to our long-term value investment horizon and provides a foundation to our culture of conservative generational wealth management.”

Over a third of Caledonia’s net assets are private capital investments in 11 UK companies with equity values of £25m-£125m. It has significant direct influence over these businesses and their management. They include control systems firm Deep Sea Electronics and bingo clubs chain Buzz Bingo.

The trust also invests in quoted companies (such as Microsoft and British American Tobacco) and funds, including quoted and private equity. The funds provide broad exposure to areas of the world where it would prove more difficult for Caledonia to invest directly.

Trading at a 17% discount to NAV, I reckon this trust is another terrific pick for long-term value investors.

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