Three bargains in the UK investment trust discount aisle

Bargain Hunter: On the whole investors continue to ignore their home market, but for those looking to increase exposure there are plenty of discount opportunities.  

The UK is ‘unloved’ by both domestic and international investors, who are on the whole adopting a ‘wait and see’ stance to the never-ending Brexit saga.

Investors who have stayed on the UK sidelines this year have missed out: the FTSE 100 index has returned 10.1% in the first half of 2019, including dividends. This represents a decent result for investors who focus on fundamentals – and on that front UK shares are cheap compared to history.

According to William Meadon, managing director of JPMorgan Claverhouse investment trust, on the ‘yield gap’ measure, which is the difference between the average yield produced by UK equities and that from 10-year UK gilts, only during the First World War have UK equities been cheaper relative to gilts.

But, despite other positives, including that 2019 is expected to be a record-breaking year for dividend payments for UK companies, on the whole investors continue to ignore their home market.

This is reflected in the discounts to net asset value on most UK-focused investment trusts, with a notable number trading on a wider discount than their 12-month average. The trust with the biggest discount gap, Woodford Patient Capital, stands out like a sore thumb, but this is due various factors.

Other UK trusts, though, appear to be trading on wider than usual discounts due to Brexit uncertainty weighing on sentiment. Standout examples include Aberdeen Standard Equity Income (discount of 5.6% versus a 12-month average discount figure of 1.2%), Diverse Income Trust (discount of 3.8% versus 0.8% premium) and JPMorgan Claverhouse (2.7% discount versus -0.3%), to close of trading on 11 July.

Trusts managed by Invesco’s Mark Barnett, including Edinburgh investment trust, are also on wide discounts, with Edinburgh on a 12.1% discount versus 8.7% for its 12-month average. But like Woodford, who was Barnett’s mentor, the wide discount owes largely to performance not being up to scratch over the past couple of years.


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