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This May Be One of the Biggest Investment Bargains Out There


The average investor probably has never heard of unit investment trusts, let alone considered buying one. But these highly flexible closed-end investments could represent one of the biggest investment bargains on the market today.

With investors taking a beating in both bonds and stocks, the choice would seem to be fleeing to cash or simply sucking it up and riding out losses that are likely to get worse before they get better. However, those volatile market conditions are creating big discounts on investment trusts that can offer investors a third option to ride out the downturn.

To determine whether investment trusts make sense for your financial plan, consider working with a financial advisor.

What Are Investment Trusts?

Investment trusts are companies that raise money to invest in other assets, from overseas stocks to corporate debt to property to shares of other assets. These closed funds are created with a limited number of shares. New investors can buy into the fund only at the start or if the fund manager takes their cash to buy additional assets and create new shares. And when an investor wants to sell out, the manager sells assets to cash out the redeemed units. The only option for an outside investor is to buy existing shares.

Because of this structure, shares of investment trusts may carry one value based on the trust’s assets but trade at another price based on investor supply and demand. This is something along the lines of a stock valued at its book price but trading at its market price. In the case of unit trusts, the underlying net asset value of the unit shares can be worth more or less than the trading price. And right now, many trusts are trading at discounts averaging 15%, with reports that some trusts’ units are discounted by more than 60%.

This is particularly true with trusts investing in assets in the U.K., where political and economic turmoil has investors scrambling. According to the Association of Investment Companies, an industry group, the average trust is trading at a 15% discount relative to its asset value, the widest gap since 2012.

Take the case of Nippon Active Value Fund plc (NAVF: LSE), which invests in small-cap Japanese equities, recently traded at £117 (GBP) while the last listed diluted net asset value for the fund is £131.61, giving it a discount of 11.33%.

A steeper discount – one that some analysts consider too steep – is the Oakley Capital Investments Limited trust (OCI: LSE) has been trading at £395, a discount of 37.2% even after a recent 4.9% uptick in the trading price of shares. The company invests in Europe-focused private equity funds holding high-growth, medium-sized companies, mostly in the technology, consumer and education sectors.

But not all trusts are seeing such deep discounts. The Fidelity Special Values PLC trust (FSV: LSE), which invests in shares of UK firms looking for long-term capital growth, recently traded at £250.5, while the last listed diluted net asset value for the fund is £273.91 – a discount of 8.%.

How to Buy Investment Trusts 

Investors looking to buy overseas investment trusts will need to work through an international broker, which includes several of the larger trading platforms, such as Interactive Brokers and Fidelity. Consider working with a financial advisor to help you navigate this investment.

Bottom Line

Unit investment trusts are highly flexible closed-end investments, and they might represent one of the biggest investment bargains out there currently. Amid market volatility, it may be worth exploring them for your portfolio.

Tips on Investing

  • The insight and guidance of a financial advisor can help you with investment trusts and other more complex investments. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • As you look to buy low and sell high, don’t lose sight of the challenges of inflation. Use our free inflation calculator as you seek an estimate of how inflation will affect your investments.

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