That’s because an investor who has purchased at a discount has more money working for them than they had initially put in by themselves. This, in addition to a potential narrowing of the discount in the future, could drive faster growth in the value invested in comparison to the performance of its benchmark index.

Of course, there’s no certainty that the discount will narrow in the future. In addition, an underperforming fund may continue to do so, leading to potentially even bigger losses for you. This is why it’s important to assess the fundamentals to find the trusts which are most likely to outperform in the future.

With this in mind, I’m taking a look at two which are currently trading at more than a 20% discount to their NAVs.

Special Situations

First up is the Hansa Trust (LSE: HAN), a special situations fund which invests in a wide range of quoted and unquoted companies. It aspires to generate attractive long-term returns by seeking out undervalued investments.

Following a strategy review in 2014, the fund has transitioned from what was primarily a UK-focused portfolio to a much more globally diversified one. Although this has driven an improvement in returns in recent years, investors remain sceptical of its approach.

The fund owns a strategic stake in Ocean Wilsons Holdings Limited, which currently accounts for 30% of its total assets. Ocean Wilsons is an investment company itself, which owns an international portfolio that includes a controlling interest in Wilsons Sons, Brazil’s largest port and logistics company.

This strategic stake underpins the uniqueness of the fund’s investment strategy. However, in recent years, the investment in Ocean Wilsons has been a drag on returns. As such, without a recovery in Ocean Wilsons’ performance, I expect the trust’s shares will continue to trade at a discount to NAV for quite some time.

Private equity

Next is the HarbourVest Global Private Equity Limited (LSE: HVPE). The company invests in a wide range of private equity funds which, in turn, give it exposure to a broad-ranging portfolio of private equity investments diversified by geography, stage of investment and industry.

As such the HarbourVest gives retail investors exposure to a market which the general public does not normally have access to. This gives ordinary investors the opportunity to buy into unquoted companies that are in the developing stage or have under-tapped potential.

On the downside, private equity investment trusts have often historically traded at a discount to their NAVs due to the difficulty in valuing their underlying investments and illiquid nature of their assets.

Additionally, the trust uses a fund of funds approach, which has been criticised for its high cost structure. Such funds are expensive due to the double layering of fees — although on the upside, they can lower risk by spreading investments across a wider range of funds and companies.

The post Are these discounted investment trusts really a bargain? appeared first on The Motley Fool UK.

Unlike almost all of the other fund groups, investment trusts are closed-ended vehicles with a structure similar to that of a company. The great thing about this structure is that investment trusts tend to have a longer lifespan and more secure dividend payouts than other fund types. Trusts such as City of London, Bankers Investment Trust, and Alliance Trust have all racked up 50 years of consecutive dividend increases for income investors.

The Hansa Trust (LSE: HAN) has been around since 1950 and over this time management has grown its net asset value from around £10m to £315m.

Unusual portfolio

Hansa offers investors exposure to an interesting selection of assets. Management describes the portfolio as a “long-term, non-index correlated portfolio of unusual investments, which would not normally be available for investment to individual investors.” This may sound like a high-risk collection of investment stakes, but it could actually be a prudent investment when combined alongside an already well-diversified portfolio.

Indeed, the great thing about Hansa’s “unusual” portfolio is that it provides insulation from wider market moves. Over the past 17 years, the trust has produced a capital return of 75% compared to the FTSE 100 return of 31%. Both of these figures exclude dividends.

However, those numbers severely understate the trust’s potential as shares in Hansa currently trade at a large discount to net asset value. According to a press release from the company today, on June 26 Hansa’s ex-income net asset value per ordinary share was 1,310.9p, around 46% above the current share price of 901p.

An attractive discount? 

The question is, why is this discount so large? The answer, it appears, lies in the trust’s portfolio. Around one-third of assets are invested in Ocean Wilsons Holdings Limited, another investment company that is engaged, through its subsidiaries, in the provision of maritime and logistics services in Brazil. Thanks to problems in this developing nation, shares in Ocean Wilsons have struggled in recent years, falling 4.1% over the past five years. 

Nonetheless, over the long term this company has produced huge returns for shareholders. Since 2004 the shares have returned 553% excluding dividends, outperforming the FTSE 100 by 484%.  

High risk

Alongside Ocean Wilsons, the rest of Hansa’s portfolio is filled with investment funds, which provide the offered “unusual” exposure but may be too high risk for some investors.

That said, as an alternative to traditional investments, Hansa should be considered for a place in your portfolio. If Brazil’s economy begins to recover, Ocean Wilsons will benefit and this should lift Hansa’s overall net asset value as well as stock price. What’s more, the broad collection of highly diversified funds under the investment trust’s umbrella could offer protection in a volatile market environment, helping you to improve your long-term returns and achieve your financial goals. 

The trust currently yields 1.78% and the total expense ratio is 0.94% per annum.

The post Could this investment trust help you retire early? appeared first on The Motley Fool UK.