Interactive Investor

Four last-minute and early bird investment trust bargains for your ISA

From incomes shares to infrastructure, experts have identified four discounted opportunities.

3rd April 2024 10:29

Sam Benstead from interactive investor

With just days to go before the 6 April ISA deadline, after which the £20,000 allowance restarts, there is still time to add some new ideas to your portfolio.  

Alternatively, if you are reading this article after the deadline has passed, you have a whole new allowance to take advantage of.  

Investment trusts often throw up opportunities for bargain hunters, as the share price can diverge from the net asset value (NAV) of a portfolio, meaning that it is possible to buy assets at less than the expected market value.  

And this is particularly relevant at the moment, with interest rate changes affecting the valuation of alternative assets, such as infrastructure and private equity, leading to trusts with great long-term track records trading at rare discounts.  

We asked four expert trust analysts what their top bargain pick is right now.  

Scottish American 

This is a 50-year “dividend hero” having raised its dividend each year for half a century. It is now trading at a 10% discount. Known as SAINTS, Scottish American Ord (LSE:SAIN) owns high-quality dividend stocks that also have bags of growth potential ahead of them. The top 10 shares includes names such as Microsoft, Novo Nordisk and Apple.  

Run by Baillie Gifford’s James Dow, with Ross Mathison as a deputy, it yields nearly 3% from a portfolio of global equities (86% of the fund), infrastructure equities (3%), direct property (6%), bonds (4%) and cash (1%). 

Investment trust analyst Winterflood highlights its strong performance under Dow since 2017: the fund has generated a NAV total return of 93%, outperforming the FTSE All World Index (+90%), the Global Equity Income peer group (+74%) and its sister open-ended fund, Baillie Gifford Global Income Growth (+83%). SAINTS has also outperformed its benchmark over the last three and five years. 

The analyst says that the current discount offers “notable value relative to history”, with this being one of the lowest ratings in the last 10 years and the fund having previously traded at a premium for prolonged periods. 

Henderson Smaller Companies 

Recent performance of UK small and mid-cap companies has been disappointing, as fears about a UK recession weighed on share prices, and outflows from the sector made weak share prices even weaker.  

Alex Watts, fund analyst at interactive investor, says this means that Henderson Smaller Companies Ord (LSE:HSL) is now in bargain territory. 

The ii Super 60-rated UK smaller companies investment trust, which has a bias towards fast-growing shares, is on a discount to NAV of 15% compared with a five-year average of about 10%. The shares in its portfolio trade on a price-to-earnings (p/e) ratio of 12 times on average, which is about half the level of late 2021. Therefore, Watts says, you are getting cheap shares at an even greater discount due to the investment trust structure. 

He adds: “Manager Neil Hermon is optimistic that the low valuations of UK small and mid-caps imply that negativity is already embedded in prices. The trust’s gearing level of 13% is reflective of a perception that valuations are near bottom.”  

Watts says that a catalyst for a revival could be an improvement in economic conditions.  

“Smaller companies are typically quick to advance when economic conditions improve. The last few months of 2023 saw this process begin, due to the perception that interest rates had peaked. The Autumn Statement was well received, and January 2024 saw the UK’s PMI rebound above estimates, hinting to a swift end to 2023’s technical recession,” said Watts.  

Oakley Capital Investments 

At a 31% discount, this private equity trust is a potential bargain, according to investment analyst Deutsche Numis. Ewan Lovett-Turner, head of investment trust research at the firm, says that it offers “exceptional value” for exposure to a portfolio of European, founder-led businesses. 

Oakley Capital Investments Ord (LSE:OCI) focuses on tech-enabled companies with asset-light business models, generating recurring revenues, competitive market positions and all with conservative borrowing. Its portfolio includes companies such as Idealista, a property search engine in Europe, and Contabo, a cloud computing platform.  

To invest in private companies, it sources deals through its network of entrepreneurs, and then takes controlling stakes so that it can implement operational change to drive value creation, such as through acquisitions or hiring fresh talent.  

Private equity trusts have been out of favour due to scepticism towards whether their valuations have repriced sufficiently following interest rate rises.  

Lovett-Turner says: “Its portfolio companies are delivering strong organic earnings growth, averaging 14% in the last 12 months, which has helped to drive strong NAV total returns of 74% over the last three years. While the shares are up slightly less at 58%, due to discount widening, this remains well ahead of major global and UK equity benchmarks.” 

Ecofin Global Utilities & Infrastructure

Currently trading on a discount of 15.5%, which is around 10 percentage points wider than its five-year average of 4.3%, Ecofin Global Utilities & Infrastructure (LSE:EGL) invests globally in utility and other economic infrastructure companies. 

Matthew Read, senior analyst, QuotedData, says this is a bargain, and investors are also paid to wait for a share price rebound as the trust yields 4%, paid quarterly.  

He says: “It also aims to realise long‐term capital growth, while taking care to preserve shareholders’ capital. Reflecting this, it invests in what most people would consider to be reasonably safe assets: holdings which have defensive characteristics, dividend yield greater than the market average, forward-looking earnings growth, strong cash-flow generation and assets that society fundamentally needs.” 

However, the kinds of companies that EGL invests in have been less in favour recently. Read says that along with renewables, which are a significant feature of EGL’s portfolio, utilities and infrastructure suffered heavily as interest rates rose in response to rising inflation.  

This is despite these underlying assets benefiting from strong levels of inflation linkage, he adds. 

“Its offering should be increasingly attractive and could become very appealing if the economy slows further, triggering investors to look towards assets with more defensive characteristics,” Read says.  

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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