Buy these investment trusts to take advantage of today’s wide discounts

Questor investment trust bargains: well run, good assets and no excessive borrowings

Last week, we suggested that now was the time to buy investment trusts in view of the unusually wide discounts at which they were trading. Today we name some specific trusts in which to invest.

To recap, we said we would seek “listed funds that are well run, have good assets, do not have excessive borrowings and yet find their shares trading at wide discounts”.

Here they are:

Equity growth: Scottish Mortgage

We outlined some of the reasons for investing in this trust four weeks ago, not least its holdings in some promising unlisted companies such as Northvolt and ByteDance, the owner of TikTok. The managers have a distinctive and consistent approach, while gearing is not excessive at about 15pc at Sept 30. The discount of 13pc is appealing for a fund that has often traded at a premium.

Equity income: Aberforth Smaller Companies

This trust has a longstanding commitment to “value” investing and has a stable team of managers at its helm. Gearing is minimal at about 4pc and the discount, although narrower than in recent weeks, is appreciable for new buyers at about 10pc. Although not strictly an income fund, it yields 3pc and has grown its dividend by 6.3pc a year over the past five years.

American equities: Pershing Square Holdings

We reversed an earlier decision to discard this fund when its manager, the American billionaire Bill Ackman, dropped hedge fund buccaneering for stock picking. The transformation has paid off spectacularly yet the shares languish at a huge discount.

Peter Walls, manager of Unicorn Mastertrust, which holds investment trusts, says: “The shares currently trade at a discount of 34pc and offer exposure to a portfolio of large US companies, with an investment manager who has significantly outperformed the US stock market over the past three and five years, in itself no mean feat.” Gearing was 17.8pc at Sept 30.

Infrastructure: International Public Partnerships

There are plenty of good infrastructure trusts but this one stands out for its minimal gearing of 4pc, which would give any fund, but especially one whose assets cannot be sold quickly, more flexibility at a time when the future of interest rates remains unclear.

We made it our pick of the infrastructure trusts in September and stand by that today. A fund that has often traded at a premium, it stands at a 17pc discount.

Debt: BioPharma Credit

So far this debt fund has never suffered a default but that impressive record is in doubt because of an uncertain future for one borrower. However, the discount of about 16pc more than prices in a full write-off of that loan, whereas some recovery of its value looks the more likely outcome.

Better still, once the situation at the problem borrower is resolved, BioPharma should be able to resume buybacks, which should bring the shares closer to par value, according to Matthew Hose, a trust analyst at Jefferies, the investment bank. Either way the fund looks oversold and the yield from its dollar-denominated shares is 8.3pc.

Private Equity: Hg Capital

Some huge discounts are to be found in this sector.

Hg Capital’s 17.5pc discount is more modest but the trust has excellent managers and a strong record, not least in achieving sales of holdings at more than the value stated on its books.

Its holdings are typically fast growing, profitable tech companies and at the end of June the trust had no borrowings.

As an alternative Peter Walls backed Oakley Capital Investments, whose long-term performance has also been very strong.

Wild card: Georgia Capital

This is a high-risk fund and we don’t recommend a large commitment, but potential rewards could be excellent. Georgia Capital invests in the country of the same name and in the words of James Pigott, a financial adviser, “is well connected and has been known to create start-ups that quickly take market share in new ventures”.

The biggest holding, Bank of Georgia, is fast growing. Gearing is in the low teens. Pigott adds: “The elephant in the room is Russia. But with a current discount of nearly 60pc it still offers good returns.”

Questor says: buy

Tickers: SMT, ASL, PSH, INPP, BPCR, HGT, CGEO

Share prices at close: 722.2p, £12.88, £31.34, 128.8p, $0.84, 407.5p, 998p


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