Top Investment Trusts Offering Growth Opportunities at a Discount
Capital Gearing Trust stands out as an investment company dedicated to capital preservation, aiming to enhance shareholders’ real wealth through a well-diversified portfolio that includes bonds, equities, and a small allocation to gold. Since the year 2000, the trust has achieved an impressive annualized growth rate of 8.3% in net asset value (NAV) per share, characterized by low volatility and minimal drawdowns.
A notable aspect of our equity holdings is that a significant portion consists of other investment trusts. This naturally raises the question: why would an investment trust invest in other trusts? Who plays the role of the poacher, and who is the gamekeeper in this scenario?
Many investment trusts currently trade at a discount to their NAV per share. This discount can be influenced by various factors, presenting both opportunities and risks. Our investment strategy focuses on identifying well-managed investment trusts that are trading at discounts, with the expectation that these discounts will narrow over time. Presently, several attractive opportunities exist in the stock market. Here are three noteworthy examples from our portfolio.
Smithson Investment Trust (LSE: SSON): This trust holds a portfolio of global small and medium-sized companies managed by Fundsmith. While large-cap companies have excelled in performance over recent years, historically, small and mid-sized firms have yielded even better returns. Launched in 2018, Smithson has delivered an annualized growth of 8.8% in NAV per share. However, since 2022, the trust's shares have traded at a discount to NAV. We have begun purchasing these discounted shares, a move mirrored by the company itself, which has initiated significant share buybacks. These buybacks are expected to enhance shareholder returns and gradually narrow the discount.
North Atlantic Smaller Companies Investment Trust (LSE: NAS): This investment trust operates under a closed-ended fund structure, providing a secure capital pool that enables managers to pursue unique strategies in less liquid markets. North Atlantic Smaller Companies exemplifies a dynamic fund manager investing in a mix of small-cap equities and private companies. With an impressive long-term performance record, it currently trades at a substantial discount to NAV of approximately 30%.
BH Macro (LSE: BHMG): This fund acts as a feeder into the global macro hedge fund, Brevan Howard Master Fund. Since its inception in 2007, it has achieved an annualized NAV return of 8.3%, demonstrating excellent risk control, including positive returns during both the global financial crisis and the COVID-19 bear market. However, the stability of its net asset growth has been challenged by significant share price volatility. Currently, it trades at a 13% discount to NAV, and the company has initiated share buybacks to mitigate high fees and gradually narrow the discount. This fund represents a genuine diversification opportunity at a deep discount.
So, is Capital Gearing Trust the poacher or the gamekeeper? We consider ourselves the latter. While we aim to capitalize on discount opportunities, we also prioritize limiting risks for our shareholders through a disciplined discount-control mechanism. We maintain our share price within a narrow range of our NAV per share by buying back or issuing shares in response to excess demand or supply in the secondary market. It’s reassuring to know that the gamekeeper is diligently protecting your interests.
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