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Three investment trusts on big discounts for Black Friday

Posted by Adrian Lowcock in Press releases category on 20 Nov 19


Adrian Lowcock, Head of personal investing, Willis Owen shares three investment trusts on big discounts for Black Friday.

Harbourvest Private Equity

This fund invests across the market cap in private companies and does so globally. The portfolio is extremely diverse which helps to reduce risk. The competitive private equity market favours large managers with global reach and broad industry expertise that can sustain future returns, which Harbourvest can support. The portfolio currently has exposure to Technology as well as biotech and consumer goods and services.  The trust sits on a discount to the underlying net asset value and has done so for a while. 

There are around 40 times as many private companies in the US and Europe than there are public companies listed on stock markets. 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.

Private equity funds are generally suitable for long-term investors who want to add additional diversification to their portfolio and willing to take additional risks. Because they are investment trusts performance can be volatile as with any liquid equity and in the short term they will be correlated to the stock market. Likewise downturns in the global economy or economic outlook could have an impact. In a weak economic environment Private equity firms will find it harder to list their investments and are less likely to get a good price if they do.

The trust has typically traded at around 18% discount to NAV to reflect the risks and challenges of valuing private equity, however that discount has widen to 35% recently as the underlying NAV has risen significantly recently. 

Temple Bar

Alastair Mundy has managed the strategy since June 2000. He is a seasoned and talented manager who has created significant alpha for investors over the long term. Debate is actively encouraged across the team on all stock recommendations, but Mundy is the final decision-maker regarding the composition of this portfolio. 

Mundy and the team use a well-established contrarian process that seeks to invest in companies whose share prices have seen significant falls relative to the market. Such a strategy comes with the risk of investing in "value traps," but Mundy and his team have proved adept in understanding business fundamentals and balance sheet dynamics to limit such problems. The process is structured and detailed, with a focus on the longer term. Although the strategy will hold names at different stages of recovery, the process leads to a persistent value bias in aggregate. 

Dividends remain an important feature here; the board is committed to paying a rising dividend year over year and has met this commitment for the past 35 years. This strategy therefore has particular appeal for those investors wanting regular and dependable income. 

Over the long term, investors have been rewarded by sticking with this strategy. The discount to Net Asset Value is only 3%, but historically this fund has traded at a premium, with it going to a discount only in recent years.

Schroder Income Growth Trust

The Company's main aim is to provide growth of income in excess of the rate of inflation as well as capital growth as a result of the rising income. The fund has been successful in its objective, and 2018 saw the 23rd consecutive year of dividend increases. 

The named manager is the talented and experienced Sue Noffke; she took over management in July 2011 and since then Noffke has executed a more diversified income stream and reduced concentration risk. She has widened the number of holdings to marginally north of 40 names from around 30. 

Noffke can write call options as another way to enhance income. This hasn’t been a dominant feature of the portfolio, especially recently, with low implied volatility levels, and it can account for a maximum of 20% of income generation. When employed, it has helped to top-up the Trust’s revenue reserve account. That account has been used by the board in the recent past to ensure it kept its commitment to grow the dividend each year, and shareholders can take comfort in knowing the board stands by this commitment.

The trust currently sits on a discount of around 7% in-line with the average over the past three years, but lower than the longer term average.