Interactive Investor

Roll up, roll up! Three Black Friday investment bargains

interactive investor on how to benefit from current market volatility and the three investment trusts seemingly on the cheap.

21st November 2023 16:14

Myron Jobson from interactive investor

The annual Black Friday/Cyber Monday sales event is upon us, with retailers offering huge discounts to attract custom in the lead up to the festive period.

Investors can potentially bag themselves a different type of bargain – one that extends beyond crowded shopping malls and online carts.

Inflation, high interest rates and geopolitical worries are among contributing factors that have stoked stock market volatility in recent history. While improved economic outlook has eased volatility in some areas, there are still a number of good-quality investments available seemingly on the cheap – although there are no guarantees.

Dzmitry Lipski, Head of Funds Research, interactive investor, says: “As we move into an environment of monetary tightening and higher inflation and higher yields there are significant opportunities to earn higher income from equities and bonds.

“Equity investors could benefit from taking a more balanced approach to equity income, giving preference to global stocks with moderate but rising dividends and strong balance sheets, instead of high dividend payers.  

“More adventurous investors could look beyond traditional asset classes to take advantage of more attractive income opportunities that exist across global markets. Emerging markets and high-yield bonds, property and infrastructure could offer higher yield - but this means taking on more risk.

“It is important to bear in mind that whatever your investment goals, a well-diversified portfolio can help spread the risk and reduce volatility and give you the best possible chance of generating sustainable and growing income in the long term.” 

Investment trust bargains 

For investors, bargain-hunting is not reserved for just a week or so of the year – particularly for those who are fans of investment trusts.

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Due to their structure, investment trusts could potentially offer investors the chance to pick up a bargain, but it is not simply a case of just looking at the discount in isolation. It is important to assess the trust’s bargain credentials by comparing its current discount with its longer-term average - such as the past 12 months. If the discount is greater than the trust’s 12-month average, it could arguably be a good entry point.

“Remember, it is important to give your investment ample time, at least five years, to grow.”

Dzmitry’s investment trusts on a discount picks

Scottish Mortgage Trust

Discount: -14%

“Baillie Gifford’s Scottish Mortgage (LSE:SMT) trust aims for capital appreciation by investing for the long-term in best-in-class growth companies across the globe, allowing an allocation of up to 30% in unlisted assets.

“Over the past decade, the popular trust has traded typically near to NAV or at a small premium, until a stark deterioration in performance in late 2021 saw the discount widen through 2022 to a depth of around 22% in H1 of 2023. Despite a small recovery over the past two months, the current discount of near 14% still represents a marked divergence from the trust’s 5-year premium/discount trend.

“The trust clearly struggled through 2022. Scottish Mortgage biases strongly towards growth companies and longer duration assets. The future value of these companies is discounted back to give a current valuation, which means valuations are impacted by rising interest rates: higher interest rates mean higher discount rates and lower current valuations. The trust clearly struggled through 2022. Scottish Mortgage biases strongly towards growth companies and longer duration assets. The future value of these companies is discounted back to give a current valuation, which means valuations are impacted by rising interest rates: higher interest rates mean higher discount rates and lower current valuations.

“However, our confidence in SMT’s investment strategy remains and this unique and high active share approach has proven its ability to create substantial alpha and pick companies at the helm of transformative themes. The global trust offers a unique and long-term approach to investing in future winners, as well as exposure to operationally strong and growing businesses that aren’t accessible via any exchange listing.”

European Smaller Companies Trust

Discount: -14%

“Managed by Janus Henderson’s Ollie Beckett, The European Smaller Companies Trust (LSE:ESCT) invests in small-caps across Europe. The bottom-up process seeks companies overlooked by the market with barriers to entry, differentiated business models and strong management. The portfolio is varied in allocating a small amount to early-cycle growth companies, with the balance across quality growth, mature and turnaround companies. The overall portfolio has no preeminent value or growth tilt, but a clear bias towards the bottom of the market-cap spectrum, even versus other small-cap peers.

“In spite of the trust’s strong track record of outperforming peers and index over the long term, poor market sentiment has manifested in a discount of 14.17% to NAV, a shade below its 3-year average and the deepest discount within its peer group.

“European small-caps have lagged returns of their large-cap counterparts through a tough 2022 and 2023 YTD. Valuations across European markets have fallen to levels below recent averages, throwing up opportunities for value-minded investors, such as ESCT, and exacerbating the perceived cheapness of the already discounted trust.

Baillie Gifford Shin Nippon Trust

Discount: -13%

Baillie Gifford Shin Nippon Ord (LSE:BGS), managed by Praveen Kumar, seeks to grow capital over the long term via investing predominantly in disruptive and dynamic Japanese small-caps possessing of substantial future growth potential.

“The trust is currently trading at a discount of near 13% which, aside from a brief period in early 2020, represents the deepest discount for the trust in over a decade and the widest discount to NAV of its peer group. This discount is far below the 5-year average of around 2%.

“While the trust boasts strong long-term performance and some great individual examples of stock picking, since 2021, the stylistic bias towards growth has been a headwind for recent returns and valuations across the portfolio have fallen to just over half those earnings multiples seen in late 2019. If sentiment towards portfolio companies recovers, and valuations normalise there could be scope for a reversal of fortunes for the trust.”

Special offers on interactive investor

  • £200 cashback offer for new customers if they open a SIPP before 31 December 2023. Minimum £15k investment.
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More deals can be found here.

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.