The best investment trusts of the past decade now going cheap: SIMON LAMBERT

Some of the best investments of the past decade are going cheap.

The top performing investment trusts of the past ten years that also trade on double-digit discounts are featured on an interesting list from trade body the Association of Investment Companies.

The average share price total return across that 20 over the past decade has been 140 per cent, yet shares can be bought on average for 16.1 per cent less than their net asset value.

This average discount has widened from an already deep 12 per cent at the end of last year and that’s a measure of how pessimistic many UK investors currently are.

Cut price: Some high performing investment trusts are on sale as discounts deepen

For those needing a quick explanation on discounts, the situation comes about as investment trusts have two quoted prices, reflecting what you can buy a share for and what the assets that share entitles you to are worth.

Trusts are traded on the stock market and have a share price, which is what it would cost you to buy a stake, and a net asset value, which measures what that share’s underlying value is.

So, with an investment trust like Polar Capital Technology, which is trading on a 14 per cent discount, you are picking up a stake in the assets it holds at 86 per cent of what they’d be worth to buy individually.

Sometimes when sentiment is very strong and lots of investors want to buy in, investment trust share prices can trade at a premium to their Nav, but at times like these when the overall investing mood is gloomier, you will find many on a discount.

What’s interesting about the AIC list is that this isn’t a jumbled mix of obscure or unloved investments, there are a host of big name trusts on here that have been strong performers in the past.

The most obvious one to highlight is Scottish Mortgage (note, I hold this trust). This former high-flier has suffered a torrid couple of years and has switched from trading at par or a slight premium to falling to a deep discount.

The AIC’s list shows Scottish Mortgage trading at a hefty 17.1 per cent discount.

This reflects a variety of things.

Among them is an understandable lack of confidence in Scottish Mortgage’s investment strategy off the back of its share price falling 57 per cent from its pandemic-era peak in November 2021.

What also needs to be factored in, is that Scottish Mortgage holds a sizeable number of unlisted companies and these can’t be priced as easily as stock market listed firms.

Scottish Mortgage invests in larger, established unlisted companies and has a robust way of valuing them, but the market in general is wary of these types of investment right now.

Our investment columnist Anne Ashworth looks at Scottish Mortgage in detail here and speaks to one of its managers Lawrence Burns.

Whether you think the discount warrants backing Scottish Mortgage’s long-term investment philosophy is up to you, but it makes for an interesting consideration for new investors or those topping up holdings.

Albeit it doesn’t do investors like me who bought at the wrong time and are now nursing a 40 per cent paper loss any favours.

Other interesting trusts on the list include the aforementioned Polar Capital Technology trust and rival Allianz Technology, while I also know some adventurous are investors interested in lowly-rated private equity trusts, a number of which feature too.

And finally, the biggest example of how discounts and premiums can dramatically swing around comes from Lindsell Train investment trust, which makes the list with a 13 per cent discount, despite its shares having climbed 209 per cent over a decade.

Not so long ago Lindsell Train was trading on a consistently large premium that at one point reached more than 40 per cent. This is because by far the largest of the investment trust’s holdings is a stake in the Lindsell Train fund management business itself, run by Micheal Lindsell and Nick Train.

For many years investors thought this stake was undervalued and were willing to pay a big premium in the expectation of either much larger profits to come from it, or the fund managers’ business being bought out.

That narrative has obviously switched around.

You can see the full top 20 high performing trusts discount list above but remember something like this should never be used as the sole basis of investment decisions. Don’t just buy an investment trust because it has a big discount – sometimes things are cheap for a reason.

By all means use it as a starting point, but do your own research and work out whether a trust is right for your risk appetite, finances and portfolio.

And check those discounts against rivals, sector averages and long-term trends for individual trusts. You can look that data up on the AIC website under trusts’ performance tabs.

This post first appeared on Dailymail.co.uk