Interactive Investor

Ian Cowie: my top-performing trusts on double-digit discounts

Our columnist looks at new research on investment trust discounts, revealing that he may be holding some bargain trusts in his portfolio.

26th October 2023 09:29

by Ian Cowie from interactive investor

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The Association of Investment Companies (AIC) has found 20 of the top-performing investment trusts over the last decade that are currently trading at double-digit discounts to their net asset value (NAV).

Better still, this long-term investor is a shareholder in two of the top three investment trusts in the AIC analysis - and I hold shares in two other funds among the 20 winners priced at less than 90% of their NAVs. Sometimes much less.

Sad to say, I missed the absolute top performer Allianz Technology Trust (LSE:ATT) that delivered eye-stretching total returns of 396% over the last decade but remains priced 13% below its NAV. Fortunately, Polar Capital Technology (LSE:PCT), which I have held for more than a decade, is not far behind with total returns of 366% over the last 10 years and trades at a  discount of 14%.

As their names suggest, both funds surf digital developments that continue to transform the worlds of work and leisure. ATT has been rewarded for holding smaller and potentially riskier assets but its top three underlying holdings are the blue chip, semiconductor-maker NVIDIA Corp (NASDAQ:NVDA); the most valuable business on this planet Apple Inc (NASDAQ:AAPL); and the software giant Microsoft (NASDAQ:MSFT).

Meanwhile, PCT’s top three holdings are in the same companies but in a different order: AAPL and MSFT followed by NVDA. Miles away from those mega-corporations, ATT’s top 10 assets also include less-well-known companies such as Datadog (NASDAQ:DDOG) and MongoDB Inc Class A (NASDAQ:MDB). Having read profiles of both businesses, I still don’t understand what they do, which rules them out for this investor.

More positively, I am glad I diversified a 27-year-old shareholding in JPMorgan Indian Ord (LSE:JII) - which was my first 10-bagger but has underperformed over the last decade - with a complementary holding in India Capital Growth Ord (LSE:IGC). The latter came second in this analysis with a total return of 390% over the last decade and remains priced 11% below NAV. IGC left JII and most competitors in the dust with its focus on medium and smaller companies in the world’s fifth-largest economy.

The smaller companies theme, including some businesses that are not listed on any stock market, continues into the fourth and fifth-placed investment trusts in the AIC’s analysis. HgCapital Trust (LSE:HGT) and NB Private Equity Partners (LSE:NBPE) hold few household names, but they delivered total returns of 351% and 322% respectively, while offering eye-catching discounts of 22% and 30%.

As usual in the private equity sector, and elsewhere, it is important to beware the risk that NAV’s might prove out-of-date and unattainable in practice. However, unlike the top three investment trusts, which pay no dividends at all, at least HGT yields 1.9% and NBPE pays 4.9% income.

One country, where many British investors have no direct exposure, provides the site of the sixth and seventh-best shares in this analysis. VietNam Holding (LSE:VNH) and VinaCapital Vietnam Opp Fund (LSE:VOF) delivered total returns of 295% and 288% respectively but remain priced at 14% and 21% below their NAVs.

VNH pays no dividends but VOF pays this happy shareholder nearly 3% income. As reported here and elsewhere several times in recent years, Vietnam is benefiting from rising tensions between America and China, with many companies based in the former country keen to reduce their reliance on the latter.

This small shareholder’s fourth entry in the AIC’s top 20 ranks 19th in this analysis but might still reward attention: Canadian General Investments GBP (LSE:CGI) delivered total returns of 179% over the last decade and is priced 36% below its NAV.

That is despite NVDA being CGI’s biggest holding, comprising 8% of the fund, and AAPL also featuring in the top 10. Other assets include more Canadian-specific companies, such as the railways operator Canadian Pacific Kansas City (TSE:CP), and the wood, pulp and paper group, West Fraser Timber Co.Ltd (TSE:WFG). CGI offers a nominal yield of 2.9%, but it is only fair to warn that Canadian withholding taxes are proving problematic for this British investor.

With all the bad news out there, such worries seem insignificant, and many folk will prefer to weather the storms ahead from short-term safe havens, such as bank or building society deposits. However, long-term investors might find bargains for the brave among top-performing trusts trading at double-digit discounts today.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Apple (AAPL), Canadian General Investments (CGI), India Capital Growth (IGC), Microsoft (MSFT), Polar Capital Technology (PCT), and VinaCapital Vietnam Opportunities Fund (VOF) as part of a globally diversified portfolio of investment trusts and other shares. 

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.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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