Fund types offering investors a chance to ‘buy low’

Market volatility can feel pretty grim while it is happening, but for those who keep their nerve, it can be a valuable moment to do a spot of bargain hunting.

However, as recent market moves have demonstrated, the bargain hunter has to be quick off the blocks. Anyone hoping to pick up a few Magnificent Seven stocks while they were going cheap has already missed the boat, with the S&P 500 close to its February peak that was achieved before the sell-off.

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With that in mind, investors looking for an under-the-radar bargain are going to have to look further afield. Fortunately, there are plenty of areas to choose from. In recent years, the focus on artificial intelligence (AI) and US mega-cap tech has crowded out a range of other opportunities and there are growing signs that investors have already started to broaden their horizons.

We ask a range of professional investors where they are finding the most compelling value opportunities.

Start of a rotation?

James Klempster, deputy head of multi-asset at Liontrust, says Europe and the UK appear to have been the first port of call for investors coming out of the US.

He says: “The first three months of 2025 were a salutary reminder that, even if you had perfect foresight on the path of events, you wouldn’t have had a great deal of luck predicting the markets’ response to them. Despite Trump’s policies to put US interests firmly front and centre, the main beneficiaries were the UK and European stock markets.  

“Have the fundamentals changed? Not enough to explain the price moves in Europe or the US. What had changed is sentiment. Essentially, the marginal buyer of these assets had decided they were happy to pay a bit more for European stocks and a bit less for those in the US.”

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Klempster says that European markets have notably benefited from the Continent having to focus more on ensuring its own security and that of Ukraine. Germany’s stock market reached a record high after its parliament approved €1 trillion (£853 billion) of spending on defence and infrastructure, raising investors’ expectations of improved economic growth. He adds: “Even with the heightened uncertainty in April, it may be that the moves so far in 2025 are the start of a rotation in markets that we believe has been long overdue.”  

The Europe trade may not necessarily be a bargain any more, but Klempster believes there is still a lot to like about the UK domestic market. The UK market has been unloved since the Brexit vote, and UK-focused fund managers have been vocal about the contrast of its obvious cheapness versus the lack of investor interest.

In a recent interview with interactive investor, veteran fund manager Nick Train said: “The underperformance of the UK stock market has resulted in a generational opportunity to access UK growth businesses that are undervalued. And I think at this juncture, it merits our sole attention.”

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This is quite an endorsement, and there are signs that investors are finally starting to take an interest in the UK market again. Since the start of the year, the FTSE 100 has outpaced the S&P 500, up 7.5% versus 1.47% (to 23 June 2025). The UK’s main index has benefited from a combination of better economic data, stable government, and relative insulation from tariff turmoil.

James Carthew, head of investment company research at QuotedData, suggests Artemis UK Future Leaders Ord (LSE:AFL) as an option for investors wanting to take advantage of a potential rally in UK assets. He says: “It is on a -13% discount (as of mid-June), and could be interesting. Its long-term track record is poor, but it now has a new manager, so that could be about to change.”

UK still looking cheap

The real excitement may be in the mid-caps and small-caps. These have been left behind by the recent rally in the large-caps, and plenty of smaller company-focused managers were despairing that they would ever get their moment in the sun. However, they have seen an astonishing rally since tariff turmoil caused stock markets to tumble. From 9 April to 17 June, the FTSE 250 is up 18.6%, while the FTSE Small Cap is up 18.2%.

Gavin Haynes, investment consultant at Fairview Investing, likes Aberforth Smaller Companies Ord (LSE:ASL) fund, managed by Edinburgh-based investment boutique Aberforth, which specialises in UK small-cap equities. “They follow a value approach looking for overlooked or under-appreciated companies trading on low valuations that have potential for recovery.” James Calder, chief investment officer at City Asset Management, is also a fan of the UK and likes the Man Undervalued Assets fund.

High yields and big discounts

Another notable spot for bargains is the renewable energy sector. Certainly, there are problems – the persistently high gilt yield, for example, has weighed on the sector – but yields of over 9% may tempt investors back to the sector (as we also explain here). Calder says this makes it a great spot for the bargain hunter.

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Equally, growing M&A and shareholder activism in the sector may be catalysts to narrow the discounts, which are 30-40% in some cases. He says: “While the performance underlying investments - net asset values (NAVs) - have stayed stable, the share prices have collapsed, there is a lot of latent value.” He and other shareholders are increasingly leaning on boards to do the right thing for shareholders to realise value in these trusts.

It is also a favoured area for Carthew. He points to companies such as SDCL Efficiency Income Trust plc. (LSE:SEIT), currently languishing on a -44% discount, with a dividend yield of 12.5%. “Its main problem is that over half its assets are in the US, where the regime is hardly friendly towards renewables. Having said that, the discount looks way too wide. Efforts are under way to sell all or part of the trust’s stake in US solar developer Onyx and the EVN electric vehicle charging business in the UK. Realising assets at or close to NAV, reducing gearing, and funding share buybacks could help stem the discount widening.”

A slightly more straightforward option is Gresham House Energy Storage Ord (LSE:GRID), currently on a -34% discount. Carthew says this looks bizarre given that a bidding war for a very similar trust, Harmony Energy Income Trust Ord (LSE:HEIT), has resulted in a bid at asset value.

The private equity sector also has lots of cheap trusts. The big picture has been clouded by the recent market volatility delaying IPOs and high borrowing costs making it harder to fund buyouts. Carthew adds: “It feels as if these concerns are overdone. HarbourVest Global Priv Equity Ord (LSE:HVPE) and Pantheon International Ord (LSE:PIN) look particularly cheap on around -40% ish discounts.”

Other areas to pique interest of value seekers

Klempster and Haynes both like emerging markets, which look cheap and where there could be some benefit from a weaker US dollar. Haynes suggests the Redwheel Next Generation Emerging Market Equity fund. He points out: “Many emerging markets are trading cheaply and this fund investsin smaller emerging markets and larger frontier markets, while excluding larger emerging markets such as South Korea, China, India, Brazil and Taiwan. The focus is on three key themes commodities, new factories of the world, and tourism.”

It has also been a more encouraging moment for dividend strategies. The security of a regular dividend has a new appeal amid the current volatility. Haynes suggests dividend income could prove to be more important than it has been over the past decade. He notes: “It could more like the previous 30 years where compounding income was a key driver of return from equities”. He likes Artemis Global Income, which follows a value approach looking for unloved, cheap dividend-producing stocks.

James Harries, senior fund manager of STS Global Income & Growth Trust Ord (LSE:STS), has been using the recent market volatility as an opportunity to “upgrade the quality and underlying growth of the portfolio”.

Harries points out: “We are living in a less secure, less global and more inflationary world than we have experienced in a generation. Against this fragile backdrop, there are opportunities for managers of a defensive portfolio to establish new investments.”

Among his new investments are Spanish IT company Amadeus IT Group SA (XMAD:AMS), UK pest control specialist Rentokil Initial (LSE:RTO) and German tech company Siemens AG (XETRA:SIE).”

The bargains today look uncannily similar to the bargains of a few months ago. Many non-US markets have been cheap and unloved, and remain attractive. The difference is that there is greater hope of investors taking notice as their love affair with US mega-cap cools.