The firm has some impressive businesses with strong growth potential in its portfolio. But the most interesting thing might be the price at which the stock’s trading.

Harbourvest’s portfolio

Harbourvest offers a way of getting exposure to some really interesting businesses. Its portfolio includes some companies that investors have probably heard of, but aren’t able to invest in.

One example is Shein – the online fashion retailer that seems to be taking the world by storm. The firm’s rumoured to be exploring a potential listing on the UK stock market in 2025.

Another is Action, a European discount retailer that’s been growing impressively. Its success is one of the key reasons 3i‘s been one of the best-performing UK stocks over the last decade.

There are others, such as Discord, Databricks, and Figma. But despite having some very interesting assets, shares in Harbourvest are trading below their net value.

Buying at a discount

Harbourvest’s net asset value (NAV) is estimated to be around £40.50 a share, but the stock’s trading at around 60% of this. That means every 60p invested buys assets with a net value of £1. 

By itself, this doesn’t make the stock an opportunity. In theory, the discount to NAV can persist indefinitely, meaning investors have no way of realising the underlying value of what they own.

In practice, this might be unlikely. But without a reason for thinking the gap’s going to close any time soon, investors might have a long wait before they are able to benefit of the low valuation.

Interestingly though, it might be that the gap’s going to close. Harbourvest’s under pressure from its shareholder base to make moves to unlock the value in its shares.

Share buybacks

One way of trying to realise the underlying value is through share buybacks. And investment firm Metage Capital wants Harbourvest to do this, instead of trying to expand its portfolio. 

Metage has written to the FTSE 250 firm’s shareholders about this. And if it happens, investors could find the gap between the company’s share price and its NAV starts to close.

This makes the stock look very attractive. But while Harbourvest’s management has been taking advantage of this by repurchasing shares, they haven’t been doing so at a rate that satisfies Metage.

That means investors need to be careful. The potential for a big gain if the underlying value of the business is unlocked is there, but there’s also a genuine risk that this may not happen soon.

One to watch

There’s a very real sense in which investing in Harbourvest is like buying £1 for 60p. But the big question is when investors are going to be able to get that extra 40p. 

The value’s there, but exactly when investors will be able to get at it’s another question. If the company starts buying back shares at a significant rate, it might be just around the corner.

This however’s by no means guaranteed. So I think this is one to keep a close eye on and wait to see what happens. That’s the approach I’m taking.

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I believe the investment trust market is a buyer’s one at the moment, particularly for an investor like me adept at trawling through the damage with the patience to hold on.

The biggest FTSE 250 bargains

The listed private equity (listed PE) sector looks the most tantalising to me within this market.

London-listed investment trusts focused on private equity have tripled their assets within a decade to £37bn. Demand for these stocks is expected to continue strongly.

So, imagine my shock when I noted a 47% net asset value (NAV) discount for FTSE 250 trust Harbourvest Global Private Equity (LSE:HVPE). For context, net asset value means the book value of the assets held in the trust. So, when one is trading at a discount, it means it’s trading at a price lower than its real value.

Harbourvest’s shares have almost doubled over the last five years. A stock with such a good track-record of growth looks particularly cheap in my eyes. So the discount is illogical to me.

Additionally, abrdn Private Equity Opportunities (APEO) is another listed PE trust trading at an abnormally large discount to NAV (40%). Alan Gauld, APEO’s lead portfolio manager, thinks this is “nonsensical“, and I agree. APEO’s NAV and share price have significantly outperformed all relevant benchmarks over the past three, five and 10 years. The experienced team has been laying the foundations for future outperformance. It’s strengthening its focus on smaller specialist managers and the mid-market for opportunities. I see it as a quality bet for the long term at a bargain price.

Steep discounts

Frankly, I think discounts tend to be overdone as investors get overly pessimistic. The positive for me is that some real bargains appear. In Harbourvest’s case I think the negative sentiment around tech stocks has marked down the share price. So I hardly find it surprising the shares are down nearly 30% year to date.

The risk for me is that the discounts on already-heavily-discounted stocks may grow even bigger. That’s especially the case if markets wilt and investors run for the hills.

But I believe both of the FTSE 250 trusts, APEO and Harbourvest, can narrow the discount over time. Specialist research and advisory firm LPX AG expects a narrowing of discounts in the months ahead. Managing Partner Michel Degosciu believes NAVs will decline to reflect higher market interest rates and lower multiples.

Risk is worth the long-term reward

Ultimately, I believe that the lower visibility that comes with owning private equity investment companies requires a longer-term approach.

From my perspective there’s an abnormally large number of quality stocks trading at huge discounts within listed PE.

The sector offers me an attractive investment case, with the portfolios of many trusts holding high quality, non-cyclical businesses. These businesses often have consistent earnings streams. APEO and Harbourvest both have portfolios well placed to deliver in a range of macroeconomic conditions.

I’ll likely buy one of these FTSE 250 stocks before Christmas, even if the discounts widen even further.

The post Buying £1 for 53p? My best FTSE 250 bargains for Christmas appeared first on The Motley Fool UK.

To the moon

Moonpig (LSE:MOON) is a greetings card company, which has expanded the offering into gifting as well. The business has grown over the past few years, and went public in Q1 2021.

Its growth in revenue can be seen from the half-year results released back in December. To provide more accurate comparisons, a two-year performance was included. The half-year growth in revenue versus 2019 was 115.2%. Adjusted profit before tax was up 147% on the two-year comparison.

I think that the business is well positioned going forward. It has a dominant position in the online greetings card market. Further, I like the expansion into broader gifting ideas. This not only makes it less reliant on the cards division, but also allows it to grow at a quicker pace.

The share price is down almost 50% over a one-year period. However, I think that this was more to do with it being overpriced at the IPO stage. Even at the current level, the price-to-earnings ratio is 88. This is well above the FTSE 250 average.

Some might see this as a risk, which I do accept. Yet by the very nature of top growth stocks, it’s going to be high. Investors think that future earnings will grow, so often view the share price based on future potential, rather than current earnings.

Top growth stock in private equity

A second top growth stock that I like at the moment is Harbourvest Global Private Equity (LSE:HVPE). The share price is up 28% over the last year. This might not fit in with the traditional growth stock on the surface, but stay with me

The private equity business is all about investing in other companies that aren’t directly listed. These could be small companies needing funding to grow, almost like Dragon’s Den-style venture capital. Or it could be mature companies that are underperforming and are bought with the aim of being turned around.

So within the portfolio, there should be some exciting options for future growth prospects. This benefits me as when the value of the individual company rises, the overall Harbourvest share price should also rise.

At the moment, I’d also be buying at a discount to the net asset value. The net asset value reflects the price of all the investments owned by Harbourvest. At the moment, the share price is at a 23% discount to the NAV, based on figures from January.

The concern with this top growth stock is that private equity is inherently risky. Investing in young companies or even mature ones that are underperforming can lead to heavy losses if things don’t go to plan.

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And if you want to invest in up-and-coming firms likely to disrupt older, established players, you really need to invest in unlisted companies – the private equity market in financial speak.

Impressive performance

For the average private investor, private equity investing has historically been hard to do. But, in recent years, several public limited companies have sprung up with the objective of investing in that market. So by buying shares in the listed firm, it’s possible for the average private investor to get exposure to those unlisted companies.

That’s what Neil Woodford was dabbling in with the unlisted investments his funds held. But it seems Woodford didn’t go about it very well, probably because he had little previous experience in the field of private equity. However, it’s a different story entirely with HarbourVest Global Private Equity, which appears to run a slick, professional investment operation backed with around 36 years experience specialising in global private markets.

The firm’s performance is impressive. Over the past five years, the share price has risen around 116%, although it’s worth noting the firm doesn’t pay a dividend. Nevertheless, I’d be happy with a return like that if it can be repeated in the years to come. HPVE achieves its results by investing both in other funds and directly into unlisted companies.

Buying to sell later

I like the investment approach. Whenever it makes an investment there’s a “clear exit strategy in place from the very beginning.” That makes a great deal of sense to me because one of the things that trips up many private investors is a tendency to buy shares without a thought about selling them later. I reckon such an approach can lead to holding on for too long, which can result in the unwinding of previous returns.

Today’s half-year results report to 31 July reveals the net asset value rose 7.1% over the six-month period. Around 4% of the underlying assets are represented by UK companies with the majority mostly in the US. Let’s face it, most of the best and most dynamic new companies originate across the pond, and the firm enjoyed previous investing success with names such as Just Eat, Airbnb, Uber and Snapchat, as they grew to become the giants they are today.

With the share price at 1,706p, there’s a discount to the net asset value of around 10%, but I reckon that’s normal rather than representing a bargain. Meanwhile, the outlook will be affected by the macroeconomic trend in the US and globally and, if the pound strengthens any further, it will act as a drag on the firm’s “sterling-based share price.”

Nevertheless, I’ve got my eye on this one and would be keen to buy some of the shares on any share-price weakness we may see.

The post I reckon this FTSE 250 investment company is succeeding where Woodford failed appeared first on The Motley Fool UK.

I think that’s staggering. As investors, many of us confine our activities to buying shares in public listed companies but we could be missing out if we do only that. HarbourVest reckons that the private equity sector has historically outperformed public markets net of all costs. But one problem in the past has been that private equity has been difficult to get into and dominated by institutions.

Listed private equity

Not anymore. HarbourVest Global Private Equity is a good example of a closed-ended investment company that likes to describe itself as “listed private equity.” In other words, you can buy shares in HVPE just like any other public, stock-market-listed firm, but HVPE exists to invest in private equity.

The firm reckons it invests in primary funds, secondary investments, and direct co-investments “to provide shareholders with superior, long-term capital growth.”  And the strategy has been working. Over the past five years, the share price has risen more than 116%.

Generally, I agree with the company’s stance that private equity is an attractive market that can help to balance risks in an individual investor’s portfolio. HVPE points out on its website that you need to invest in private equity, for example, if you want to invest in many of the earlier-stage firms that go on to disrupt established industries. Typically, older, established ripe-for-disruption sectors are well represented by publicly listed shares. So, in theory, weakness in certain stock-market investments could be offset by private-equity-focused investments.

Some of the underlying high-profile successes that HVPE has been invested in at an early stage onwards include names such as Just Eat, Airbnb, Uber and Snapchat. However, there’s no certainty that the firm will go on to perform well, and I reckon the private equity market is just as exposed to cyclical factors in the macroeconomic environment as public listed shares are. One decent general economic slump and all bets are off!

Low-looking valuation, impressive full-year figures

Maybe the low-looking valuation is the stock market’s way of accounting for such risks with HVPE. With the share price close to 1,620p, the stock trades at around 90% of book (asset) value and the price-to-earnings multiple is around seven. The firm doesn’t pay a dividend, which could be a factor putting some investors off holding the shares.

Today’s full-year report reveals that net asset value grew 12.3% during 2018, which is the “tenth consecutive year of growth” in the measure. That works out to an annual compound growth rate of 12.2% over the decade. Chairman Sir Michael Bunbury said in the report the company has a net cash position and an increased credit facility of $600m, which places it well to take advantage of “high-quality opportunities in private markets, for the benefit of our shareholders.”

I think HarbourVest Global Private Equity is interesting, and I’d consider adding a few of the firm’s shares to my portfolio.

The post Why I’d buy shares in this FTSE 250 growth champion appeared first on The Motley Fool UK.

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.

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Private equity

Private equity has been one of the best-performing alternative asset classes in recent years, and that’s helped to attract billions in flows from sovereign wealth funds, pension companies and other institutions. It’s an area that’s largely closed off to direct retail investors, but there are a few investment companies, such as the HarbourVest Global Private Equity Limited (LSE: HVPE), which give them indirect access to this market.

What’s unique about private equity funds is that they typically invest in unquoted companies that are in the developing stage or have under-tapped potential. This means there’s the potential to generate higher returns than in the stock market, while improving portfolio diversification at the same time.

HarbourVest invests in a wide range of private equity funds which, in turn, gives it exposure to a broad-ranging portfolio of equity investments diversified by geography, stage of investment, vintage year, and industry.

And with a share price of 1,290p, HarbourVest trades at a 15% discount to its NAV, meaning prospective investors can effectively purchase shares in the fund for significantly less than the sum of its parts.

A healthcare fund poised for growth

Sector investing offers targeted exposure to company stocks in individual industries which can help you to pursue opportunities which affect specific parts of the economy.

One sector which I’m particularly keen on is healthcare. The sector offers huge potential, as it benefits from a number of long-term structural tailwinds, which include an ageing global population, a growing middle class in emerging markets, and innovation in new drug development. Of course, not every company will perform well in a sector that is benefiting from long-term trends, which means it’s important to diversify and spread your capital over a reasonable number of companies.

But instead of just buying the likes of GlaxoSmithKline and AstraZeneca, why not diversify geographically to potentially boost returns and reduce risk? After all, healthcare is a global business, so you’re getting foreign exposure from domestically-based businesses anyway. What’s more, the US has many more publicly-listed healthcare companies than the UK, particularly in the biotech sector, which means avoiding international companies drastically narrowing your investment universe.

That’s why most funds investing in the healthcare sector typically have a global outlook. And one fund which has caught my eye recently is the Worldwide Healthcare Trust (LSE: WWH), which I reckon to be a smart bet on the sector.

Since its inception in 1995, the fund has proven leadership, having been continuously run by two specialist investment veterans, Samuel Isaly and Sven Borho. Performance figures for the past five years show the trust earns a total share price return of 211%, easily beating its benchmark MSCI World Health Care Index’s performance of just 131% over the same period.

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